Economic Impact Analysis for the Brick and Structural Clay ... · clay minerals, parts, and additives. Tables 2-1 and 2-2 show the historical production cost data for the brick and

United States Office Of Air Quality EPA-452/R-03-006

Environmental Protection Planning And Standards February 2003

Agency Research Triangle Park, NC 27711

Air

Economic Impact Analysis for the

Brick and Structural Clay Products

Manufacturing NESHAP: Final Rule

Economic Impact Analysis for the

Brick and Structural Clay Products

Manufacturing NESHAP: Final Rule

U.S. Environmental Protection Agency

Office of Air Quality Planning and Standards

Innovative Strategies and Economics Group, MD-C339-01

Research Triangle Park, NC 27711

February 2003

This report has been reviewed by the Emission Standards Division of the Office of Air QualityPlanning and Standards of the United States Environmental Protection Agency and approved forpublication. Mention of trade names or commercial products is not intended to constitute endorsementor recommendation for use. Copies of this report are available through the Library Services (MD-35),U.S. Environmental Protection Agency, Research Triangle Park, NC 27711, or from the NationalTechnical Information Services 5285 Port Royal Road, Springfield, VA 22161.

Acronyms

BSCP Brick and Structural Clay Products

CAA Clean Air Act

DIFF Dry Injection Fabric Filter

EIA Economic Impact Analysis

EPA United States Environmental Protection Agency

HAPs Hazardous Air Pollutants

HCl Hydrogen Chloride (also known as Hydrochloric Acid)

HF Hydrogen Fluoride

ISEG Innovative Strategies and Economics Group

MACTMaximum Achievable Control Technology

MRR Monitoring, Recordkeeping, and Recording

NAICSNorth American Industry Classification System

NESHAP National Emission Standards for Hazardous Air Pollutants

OAQPS Office of Air Quality Planning and Standards

O&M Operating and Maintenance

RFA Regulatory Flexibility Act

SBE Standard Brick Equivalent

SBREFA Small Business Regulatory Enforcement Fairness Act

SIC Standard Industrial Classification

TAC Total Annual Costs

VOS Value of Shipments

1-1

ECONOMIC IMPACT ANALYSIS:

BRICK AND STRUCTURAL CLAY PRODUCTS

1 INTRODUCTION

Pursuant to Section 112 of the Clean Air Act, the U.S. Environmental Protection Agency (EPA

or the Agency) is developing National Emissions Standards for Hazardous Air Pollutants (NESHAPs) to

control emissions released from the domestic production of bricks and structural clay products (BSCP).

Production of BSCP entails the firing of shaped clay minerals in kilns, a process that results in emissions

of hazardous air pollutants (HAPs). The NESHAP which this economic impact analysis (EIA)

addresses is scheduled to be proposed in mid-2001. The Innovative Strategies and Economics Group

(ISEG) of the Office of Air Quality Planning and Standards (OAQPS) has developed this analysis in

support of the evaluation of impacts associated with the BSCP manufacturing NESHAP.

1.1 Scope and Purpose

This report evaluates the economic impacts of pollution control requirements on BSCP

operations. The Clean Air Act (CAA) was designed to protect and enhance the quality of the nation’s

air resources and Section 112 of the CAA establishes the authority to control HAP emissions. A large

percentage of the HAP compounds released from BSCP facilities are hydrogen fluoride (HF) and

hydrochloric acid (HCl). To reduce emissions of these HAPs and other HAP metals, the Agency

establishes maximum achievable control technology (MACT) standards. The term “MACT floor” refers

to the minimum control technology on which MACT standards can be based. The MACT floor is set by

the average emissions limitation achieved by the best performing 12 percent of sources in a category or

subcategory when that category or subcategory contains at least 30 sources. The estimated costs for

individual BSCP facilities to comply with these standards are inputs to the economic impact analysis

presented in this report.

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1.2 Organization of the Report

The economic impact analysis is organized into four sections. Section 2 provides a profile of the

industry which includes a description of the producers and consumers of BSCP. This section also

presents available market data and trends in the industry, including domestic production, foreign trade,

and apparent U.S. consumption. Section 3 describes the facility-level costs of complying with this

NESHAP and Section 4 provides facility-, market-, and society-level impacts of complying with this

rule. Small business considerations are made in Section 5 as required by the Regulatory Flexibility Act

(RFA) which was modified by the Small Business Regulatory Enforcement Fairness Act of 1996

(SBREFA).

2 INDUSTRY PROFILE

The industry profile is organized as follows: Section 2.1 describes the processes and costs of

producing BSCP, as well as the types of emissions released during production. Section 2.2 explains the

various uses, consumers, and substitute products available for BSCP. Section 2.3 provides a summary

profile of the BSCP industry, including a description of the manufacturing facilities and the companies

that own them.

Bricks and structural clay products are among the most commonly used materials in the

construction of homes and buildings. These products are durable, weather-resistant, and fireproof,

thereby making them suitable for use in construction (Brick Industry Association, 1999). Bricks are

cemented together to erect the walls of buildings while other structural clay products are used in various

building applications. For example, clay pipe, structural clay tile, and drain, sewer, and roofing tile, are

used in plumbing systems and roofing applications.

BSCP manufacturing falls under the following Standard Industrial Classification (SIC) codes:

• SIC 3251, Brick and Structural Clay Tile; and

• SIC 3259, Structural Clay Products, not elsewhere classified (n.e.c).

These correspond to the following North American Industrial Classification System (NAICS) codes:

1Of these stages of production, only the firing stage is impacted by the NESHAP.

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• NAICS 327121, Brick and Structural Clay Tile Manufacturing; and

• NAICS 327123, Other Structural Clay Products Manufacturing.

Production of bricks and structural clay products follows a similar process. Regardless of thestructural clay product being produced, the production process results in HAP emissions. The primaryHAPs emitted are hydrogen fluoride (HF) and hydrogen chloride (HCl) and the major source of theseemissions are kilns used to fire BSCP.

2.1. Production Overview

This section provides a description of the production of BSCP. Section 2.1.1 provides anoverview of the stages of production, while Section 2.1.2 briefly describes the emissions released asBSCP are produced. Section 2.1.3 addresses the costs of producing BSCP and last, Section 2.1.4provides average values of the types of clay minerals used in the production of BSCP.

2.1.1 Stages of Production

As shown in Figure 2-1, there are several steps involved in the production of BSCP. Clayminerals, the primary raw materials used in BSCP manufacturing, must first be mined. The minedmaterials are then:

• prepared through crushing, grinding, and screening;

• shaped into BSCP through forming and cutting;

• dried in dryers;

• fired in tunnel or periodic kilns; and then

• cooled prior to packaging and shipping1.

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Mining or Quarrying

Primary Crushing

Grinding and Screening

Forming and Cutting

Drying

Firing, Flashing, and Cooling

Storing and Shipping

Production Process Product

Raw clay minerals

Crushed clay minerals

Ground clay minerals

Unfired bricks

Dried unfired bricks

Finished bricks

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Figure 2-1. Brick and Structural Clay Products Manufacturing Process

Source: U.S. Environmental Protection Agency. 1997. Emission Factor Documentation forAP-42,

Section 11.3, “Brick and Structural Clay Products Manufacturing: Final Report.”

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A detailed discussion of the production process below focuses on brick manufacturing, asstructural clay products typically are produced in a similar manner. The primary differencein the production processes of bricks and structural clay products is how the prepared clayminerals are shaped and sized. Information in this section was taken from EPA’s EmissionFactor Documentation on Brick and Structural Clay Products Manufacturing (1997).

Production of brick begins with the mining of raw material, such as common clayand shale. This is the most common type of clay used in the production of BSCP. Producersof BSCP acquire their raw material either by mining it themselves or by purchasing it fromlocal mineral processing plants. Often, a company owns a mining pit as well as facilities atwhich BSCP are produced. After the material is mined or purchased, it is fed into a crusherfor initial size reduction. The material next passes through grinders to produce a finelyground material. This product is then screened for size and oversized material is returned tothe grinders. The finely ground material is next conveyed to the mill room where it isformed into bricks.

The following processes exist to shape bricks:

• stiff mud extrusion,

• soft mud press process, and

• dry press process.

Most brick is formed through the stiff mud extrusion process. This process begins with theuse of a pug mill. In the mill, finely ground clay minerals are mixed with water and are thentransferred into a vacuum chamber. Producers at this point can introduce additives, such asbarium carbonate, to prevent sulfates present in the clay minerals from rising to the surfaceof the bricks. Next, air is removed from the material in the chamber, and the material isextruded through dies. Surface treatments can be introduced at this point to add specificcolor or texture to the product. Some of these surface treatments include manganese dioxide,iron oxide, and iron chromite. The extruded column of material is then cut into individualbricks using a wire-cutting machine. The bricks are set onto kiln cars and proceed to thedryers, which are typically heated to 204 degrees Celsius.

The soft mud process is used to produce bricks when clay is too wet for extrusion. Inthis process, finely ground clay minerals are blended with water and then formed into bricksusing molds. The bricks are dried before proceeding to the kilns. In the dry press process,clay is mixed with a small amount of water and steel molds are used to shape the individualbricks. Pressure of 500 to 1,500 pounds per square inch is then applied to the molds to bondthe material into bricks. These bricks then proceed to the dryers.

From the dryer, the bricks enter the kiln for firing. There are several steps to firingthe bricks in the kiln. These steps are the evaporation of free water, dehydration, oxidization,

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vitrification, and flashing. Flashing refers to the process of introducing uncombusted fuelinto the kiln atmosphere in order to add color to the surface of the bricks. Most kilns are firedwith natural gas, although coal, sawdust, fuel oil, and landfill gas are also used. Once thebricks have been fired, they are then cooled to ambient temperatures before they leave thekiln. This completes the process of brick manufacturing.

2.1.2 Emissions from the Brick and Structural Clay Product Facilities

Production of BSCP requires a number of steps that result in the emissions of HAPsand other pollutants. These pollutants include particulate matter (PM), sulfur dioxide (SO2),nitrogen oxides (NOx), carbon monoxide (CO), carbon dioxide (CO2), volatile organiccompounds (VOCs), and HAPs including HCl, HF, and HAP metals. The grinding andscreening operations and kilns emit PM emissions. Kiln fuel combustion and some dryercombustion also result in emissions of SOx, NOx, CO, and CO2. However, the primarysource of SO2 emissions from the kilns is the raw material, which contains sulfur compounds. These sulfur compounds form SO2 when the raw material is fired. Similarly, the kilnsrelease HF and HCl due to the presence of fluoride and chloride compounds in the rawmaterial.

2.1.3 Costs of Production

This section discusses the costs of producing BSCP. There are several types ofproduction costs such as:

• capital expenditures, including the costs of equipment and itsinstallation;

• energy costs, which are the costs of electricity and fuels used in theproduction of BSCP;

• labor costs, including the costs associated with employees wages andbenefits; and

• the cost of materials, which are the costs of tangible inputs such asclay minerals, parts, and additives.

Tables 2-1 and 2-2 show the historical production cost data for the brick and structural claytile industry (SIC 3251) and the other structural clay product industry (SIC 3259) that weregathered from the U.S. Census Bureau.

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Table 2-1. Production Costs for the Brick and Structural Clay Tile Industry (SIC 3251)($106)

Year Labor

Costs

Material

Costs

Energy

Costs

Capital

Expenditures

Value of

Shipments

1992 $213.9 $229.5 $142.7 $42.9 $1,116.0

1993 $229.3 $280.0 $157.3 $56.1 $1,199.1

1994 $233.9 $312.2 $151.2 $63.8 $1,319.1

1995 $235.2 $300.8 $139.8 $77.1 $1,283.3

1996 $246.7 $304.0 $160.3 $132.9 $1,421.9

1997 $262.2 $282.0 $175.6 $72.1 $1,452.2

Avg. $236.9 $288.0 $154.5 $74.2 $1,298.6

Source: U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Economic Census,

Manufacturing Industry Series, “Brick and Structural Clay Tile Manufacturing.”

U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures,

M96(AS)-1 Statistics for Industry Groups and Industries.





Similar trends can be seen in the production costs across both SIC codes. For boththe brick and structural clay tile industry (SIC 3251) and the other structural clay productsindustry (SIC 3259), the cost of materials accounts for the largest share of the value ofshipments (VOS). For SIC 3251, cost of materials were equal to about $288 million onaverage, or 22 percent of the brick and structural clay tile industry’s (SIC 3251) VOS. ForSIC 3259, material costs on average were almost $38 million, or 27 percent of the industry’s(SIC 3259) VOS. Labor costs represent the next largest share of the VOS for both markets,approximately 20 percent, and energy costs are approximately 11 percent of their VOS. Capital expenditures represent the smallest share of VOS for both SIC 3251 and SIC 3259.

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Table 2-2. Production Costs for the Other Structural Clay Products Industry

(SIC 3259) ($106)

Year Labor

Costs

Material

Costs

Energy

Costs

Capital

Expenditures

Value of

Shipments

1992 $23.5 $34.3 $15.0 $5.4 $125.8

1993 $25.2 $30.6 $17.0 $6.8 $118.3

1994 $28.7 $41.5 $15.5 $4.0 $142.1

1995 $29.7 $43.2 $16.3 $4.4 $150.4

1996 $37.6 $52.3 $21.7 $4.2 $177.5

1997 $22.9 $25.9 $8.9 $4.9 $118.3

Avg. $28.0 $38.0 $15.7 $5.0 $138.7

Source: U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Economic Census,

Manufacturing Industry Series, “Other Structural Clay Product Manufacturing.”

U.S. Department of Commerce, Bureau of the Census. 1996 Annual Survey of Manufactures,






Upon examination of both tables, the data clearly show that the size of the brick andstructural clay tile industry is much larger than the other structural clay products industry. Infact, the value of shipments for the brick and structural tile industry (SIC 3251) is almost tentimes greater than the value of shipments for the other structural clay products industry (SIC3259).

2.1.4 Value of Clay Minerals

The most common raw materials used to produce BSCP are common clay and shale. Fire clay, kaolin, and other materials are also used, but to a lesser degree. The average value

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per metric ton of common clay and shale over the years 1993 to 1997 was $5.64. For fireclay, the average value over the same time period was $21.64 and for kaolin, it was $114.42. Based on the differences in the average values across these clay types, it is clear whycommon clay and shale would be used as an input since it is suitable for BSCP. It is arelatively cheaper input that possesses the necessary attributes to produce BSCP.

Table 2-3 shows the difference in values of common clay and shale, fire clay, andkaolin produced and sold in the U.S. for the years 1993 through 1997. The production-weighted average price for clay minerals used in BSCP is also derived. Since the weightedaverage prices are relatively low, it is clear that common clay and shale is more heavilyrelied upon relative to fire clay and kaolin for production of BSCP. In fact, on average overthis time period, 98 percent of the clay minerals used in BSCP were common clay and shale(Virta, 1999).

Table 2-3. Price Value of Clay Minerals Used in BSCP: 1993 - 1997 ($/metric

ton)

Clay Minerals 1993 1994 1995 1996 1997 Avg.

Common Clay & Shale $5.42 $5.31 $5.90 $5.50 $6.08 $5.64

Fire Clay $25.05 $25.44 $21.96 $21.19 $14.56 $21.64

Kaolin $108.38 $116.31 $117.09 $119.83 $110.52 $114.42

Weighted Averagea $7.23 $6.97 $7.82 $7.34 $6.47b $6.97

Notes: aWeighted average reflects the production-weighted prices for clay minerals used to produce BSCP.

bProduction-weighted average price for the year 1997 does not include fire clay because quantity of

this clay mineral used in BSCP was not available for this year.

Source: Virta, Robert. 1999. “Clays,” In: Minerals Yearbook, Metals and Minerals 1997: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1998. “Clays,” In: Minerals Yearbook, Metals and Minerals 1996: Volume 1.






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The value of common clay and shale remained relatively constant, although it didreach a peak price of $6.08 per metric ton in 1997. Contrary to the behavior of the value ofcommon clay and shale, both fire clay and kaolin sharply dropped in value in 1997. In fact,fire clay shows a general declining trend over the years 1993 to 1997 while kaolin steadilyincreased in value until it reached a peak of $119.83 in 1996. It then sharply fell in value in1997.

2.2 Uses, Consumers, and Substitutes

Clay minerals are the main input used to produce BSCP. These products are thenused by the construction industry to build several different types of structures, includinghomes, buildings, and office facilities. The following section describes the uses, consumers,and substitutes of BSCP. In Section 2.2.1, the various uses for BSCP are described. Section2.2.2 identifies the intermediate and final consumers of bricks and structural clay products. Last, the different products that can act as substitutes for bricks and structural products aredescribed in Section 2.2.3.

2.2.1 Uses of Brick and Structural Clay Products

Bricks and structural clay products are used as inputs to the production of buildings,homes, and structures. Building, face, and common bricks are used to erect the walls ofstructures, while glazed bricks are used for flooring. Other structural clay products, such asclay pipe, structural clay tile, chimney pipe, flue linings, and drain, sewer, and roof tile areused in the installation of plumbing systems, fireplaces, and roofs. Brick and structural clayproducts have a variety of characteristics desirable in building materials. They are durable,resistant to fire, weather, and pests, and require little maintenance. Use of bricks enhancesthe resale value of homes and is considered energy efficient since they absorb heat and slowdown heat transfer. In the summer a brick exterior retards the absorption of heat and in thewinter, the exterior retains heat indoors (Brick Industry Association, 1999).

Census Data provide the 1997 values of select BSCP produced by SICs 3251 and3259. As Figure 2-2 shows, the value of common, building, and face brick represents 95percent ($1.34 billion) of the value of shipments for selected products in the brick, structuralclay tile, and structural clay products industries. The rest of the end uses represented here,facing tile, glazed and unglazed brick, structural clay tile, and vitrified clay sewer pipe andfittings, together comprise only 5 percent of the value of shipments. This distribution isperhaps explained by the fact that there are a number of less expensive

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Building, common, and face brick

95%

Facing t ile and glazed and unglazed brick

1%

Structural clay t ile 1%

Vit rified clay sewer pipe and fit t ings

3%

1997 Value of Shipments = $1.41 Billion

Figure 2-2. Distribution of BSCP Shipments by End Use: 1997

Source: U.S. Department of Commerce, Bureau of the Census. 1998. Current Industrial Reports for Clay Construction Products - Summary 1997.

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products that compete with structural clay products, such as concrete and PVC pipes andasphalt roofing materials. Structural clay products are, for the most part, specialty items inmany parts of the country. It is important to note that the above pie chart represents selectedBSCP in both SICs 3251 and 3259. The value of shipments of these products, $1.41 billion,is therefore less than the sum of the value of shipments for the entire BSCP industry ($1.57billion).

2.2.2 Consumers of Brick and Structural Clay Products

The immediate purchasers of these products are construction companies who usethem as inputs to the production of homes, buildings, and structures. Constructioncompanies or contractors may also buy these products to specifically install plumbingsystems, fireplaces, and new roofs and floors to existing structures. Consumers thenpurchase the homes, structures, and buildings produced by construction companies, or theyhire contractors to make improvements to existing structures using structural clay products. These consumers therefore have an indirect demand for BSCP. However, if they buildhomes or make improvements themselves, then consumers directly demand these products.

2.2.3 Substitutes for Brick and Structural Clay Products

Aside from brick, there are a number of alternative building materials that can beused for the exterior walls of buildings, homes, and structures. Common alternatives arestucco, wood, hardboard, and aluminum and vinyl siding. There are certain advantages anddisadvantages to using these materials instead of brick.

Stucco is made from sand, Portland cement, and water and is extremely durable. It isapplied in three coats with pigment mixed in so that painting is not necessary. While stuccocan create an extremely strong and long-lasting exterior, it can be difficult to apply and issubject to cracking if applied incorrectly. Wood is the oldest siding material used to buildexterior walls for homes and buildings. It comes in a variety of forms including shingles,panels, and natural logs. When used for exterior walls, wood can be left as is, or can bepainted over therefore offering flexibility in its appearance. It is organic which makes it anattractive option, however exposure to severe weather can result in wood rot and decay. Inaddition, wood is vulnerable to pests, such as termites, that can damage the structure ofhomes. Hardboard is a wood composite made by mixing wood fiber and a natural orchemical binder and pressing the mixture into panels or lap siding. Hardboard siding iscoated with a water resistant primer and is painted. Aluminum and vinyl siding are simpleexterior materials to care for, as they are nailed to the exterior of structures. These sidings donot need to be painted and can be easily cleaned by washing with water (Better BusinessBureau, 2000).

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There are also alternatives to roofing tiles and glazed brick for roofing and flooringapplications. Roofing tile is one option for roofing, however wood shingles, asphalt, andmetal can also be used. One of the characteristics common to roofing tile, asphalt, and metalis that they are all fireproof. Wood shingles are not as common as they once were becausethey do not possess this quality. Alternatives to clay tiles for flooring are wood, marble,vinyl, and linoleum. These options vary by price, quality, and appearance. Marble, clay tile,and hardwood floors are relatively sturdy, and therefore more expensive than vinyl andlinoleum.

2.3 Industry Organization

This report addresses the economic impacts of pollution control requirements onfacilities that produce bricks and structural clay products. Because there are costs associatedwith the control of HAPs, it is important to determine how the industry may be affected. This section provides a description of the industry’s organization at both the facility-leveland company-level. Section 2.3.1 first provides an overview of the market structure of theBSCP manufacturing industry. Section 2.3.2 characterizes the manufacturing facilities inthis industry, while the parent companies of these facilities are described in Section 2.3.3. Last, Section 2.3.4 provides data on domestic production, foreign trade, and apparentconsumption of bricks and structural clay products.

2.3.1 Market Structure

Market structure is of interest because it determines the behavior of producers andconsumers in the industry. In perfectly competitive industries, no producer or consumer isable to influence the price of the product sold. In addition, producers are unable to affect theprice of inputs purchased for use in production. This condition is most likely to hold if theindustry has a large number of buyers and sellers, the products sold and inputs used inproduction are homogeneous, and entry and exit of firms is unrestricted. Entry and exit offirms are unrestricted for most industries, except in cases where the government regulateswho is able to produce output, where one firm holds a patent on a product, where one firmowns the entire stock of a critical input, or where a single firm is able to supply the entiremarket. In industries that are not perfectly competitive, producer and/or consumer behaviorcan have an effect on price.

Concentration ratios (CRs) and the Herfindahl-Hirschman index (HHIs) can providesome insight into the competitiveness of an industry. The U.S. Department of Commercereports these ratios and indices for the four-digit SIC code level for 1992, the most recentyear available. Table 2-4 provides the four- and eight-firm concentration ratios (CR4 and

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CR8, respectively), and the Herfindahl-Hirschman index for both the brick and structuralclay tile industry (SIC 3251) and for the other structural clay products industry (SIC 3259). For SIC 3251, the CR4 was 34 percent, and the CR8 was 52 percent. For SIC 3259, the CR4was 35 percent and the CR8 was 60 percent.

The criteria for evaluating the HHIs are based on the 1992 Department of Justice’sHorizontal Merger Guidelines. According to these criteria, industries with HHIs below1,000 are considered unconcentrated (i.e., more competitive), those with HHIs between 1,000and 1,800 are considered moderately concentrated (i.e., moderately competitive), and thosewith HHIs above 1,800 are considered highly concentrated (i.e., less competitive). Ingeneral, firms in less concentrated industries are more likely to be price takers, while those inmore concentrated industries have more ability to influence market prices. Based on thesecriteria, both the brick and structural clay tile industry and the other structural clay productsindustry can be modeled as perfectly competitive for the purpose of this EIA.

Table 2-4. Market Concentration Measures for the Brick and Structural Clay Tile

Industry (SIC 3251) and the Other Structural Clay Products Industry (SIC 3259)

SIC Code

Value of Shipments

($106) CR4 CR8 HHI

3251 $1,452.19 34% 52% 433

3259 $118.35 35% 60% 560

Note: CR4 and CR8 are the concentration ratios of the top 4 and 8 firms in the industry (by sales),

respectively. HHI refers to the Herfindahl-Hirschman Index which is the sum of squared market

shares for each company in a given industry.

Source: U.S. Department of Commerce, Bureau of the Census. 1999. 1992 Concentration Ratios in

Manufacturing. <http://www.census.gov/epcd/www/concentration.html>.

2.3.2 Manufacturing Facilities

As of 1996, there were 189 facilities producing bricks and structural clay products inthe United States. Of these facilities, 164 were brick producers, 19 were structural clayproduct producers, and 6 produce both product types. Regardless of the type of product thefacility produces, it can be classified as either one of two types of producers: a non-integratedproducer or an integrated producer. Non-integrated BSCP producers purchase clay mineralinputs to use in production and then complete the manufacture of the final products.

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Integrated producers of BSCP are vertically integrated, which means they mine their ownclay mineral inputs to use in the production of their final products.

The size of facilities depends on whether they are non-integrated or integratedproducers. Plants that perform their own mining operations tend to be larger in size thanthose that purchase their inputs from a minerals processing plant. Even if facilities are non-integrated producers, it is likely that they are located near sources of clay minerals so that thetransportation cost of this essential input remains low. Thus the locations of the 189 facilitiesare determined by the location of common clay and shale deposits. These facilities arelocated across 39 states with the highest concentrations in Ohio, with 22 facilities, NorthCarolina with 20 facilities, Texas with 18 facilities, and Alabama with 11 facilities (seeFigure 2-3).

2.3.3 Firm Characteristics

The Agency identified 90 ultimate parent companies that owned and operated the 189potentially affected facilities within this source category during 1996. Sales and employmentdata were obtained for these owning entities from either their survey response or one of thefollowing secondary sources:

C American Business Directory (American Business Information, 1999),

C Dun & Bradstreet Market Identifiers (Dun & Bradstreet, 1999),

C Gale Group Company Intelligence (Gale Group, 1999),

C Hoover’s Online (Hoover’s, 2001),

C The Handbook of Texas Online (1999), or

C Standard & Poor’s Register-Corporate (Standard & Poor’s Corp., 1998)

Appendix A provides a listing of the companies identified by the Agency that own thepotentially affected facilities within this source category.

Annual sales and employment data were available for 86 of the 90 companies (96percent). The average (median) sales of companies reporting data were $124.5 million ($8.0million). This includes revenue from operations other than BSCP manufacturing. Theaverage (median) employment for these companies was 987 (92) workers. As of 1998, thetop four companies in annual sales are:

• Hanson, PLC - $3.0 billion with 27,000 employees,

• Certainteed Corporation - $1.6 billion with 6,950 employees,

• Wienerberger Baustoffindustrie AG - $1.5 billion with 10,370employees, and

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• Texas Industries, Incorporated - $1.2 billion with 4,100 employees.

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18

22

4

1

2

1

510

2

1

5

2

2

7

23

1

66

1

4

9

4

1

68

3

2

820

122 3

11

11

Figure 2-3. Location of Brick and Structural Clay Product Facilities

2 Company revenues were estimated by multiplying baseline price by reported production totals of their brick and structural clay product facilities.

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2.3.4 Small Business Annual Sales

EIA estimated revenues derived from company survey responses were used to represent annual sales for small businesseswhen these estimated revenues were greater than the annual sales reported in publicly available company profiles, or when annualsales figures were not available2. By definition, company sales are at least equal to the sum of the revenues generated at itsfacilities. Therefore, in the cases where annual sales were less than the EIA estimated revenues for the small firms, EPA chose torely upon revenue estimates based on company survey responses. Sales may be under-reported in the secondary sources listedabove because they represent the annual sales of a subsidiary or branch of a company or because these providing organizationsgenerated their sales estimates. Additionally, relying on estimated revenues instead of potentially under-reported company salesdata makes consistent the results across the facility-level economic impacts model (in Section 4) and the small business cost-to-sales ratio screening analysis (in Section 5). Of the 77 small businesses, 36 had estimated revenues in excess of their publiclyavailable sales data and an additional 3 small companies had no available sales data. Table 2-5 provides comparative statistics oncompany sales and their estimated revenues for this subset of small companies.

Table 2-5. Summary Statistics for Small Company Sales Data: 1999

Publicly Reported Sales($106/yr)

EIA Estimated Revenues ($106/yr)

Companies (#) 36 39

Average 5.7 10.0

Median 4.2 6.1

Minimum 1.0 1.1

Maximum 22.0 48.2Note: The summary statistics calculated for annual sales from publicly available sources excludes three companies that were included in the summary

statistics for annual estimated revenues because no annual sales data were reported.

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Table 2-6 presents a frequency distribution of the discrepancy between annual sales and estimated annual revenues for thesmall companies with identified data discrepancies. It is clear that for a large share of these firms, the discrepancy betweenreported sales and EIA estimated revenues are rather large. In fact, over 35 percent of the 36 companies have estimated revenuesthat are over 100 percent greater than the reported annual sales. The magnitude of the discrepancy supports a replacement of theannual sales data with EIA estimated annual revenues, at least for the small companies, whose sole business it is to produce andsell brick and structural clay products.

Table 2-6. Summary of Discrepancy Between Annual Sales and Estimated Annual Revenues for Small Companies: 1999

Discrepancy Size

Number of Firms

Share of Firms

Average Annual Sales ($106)

< 5 % 1 3 % $4.5

5 - 10 % 4 11 % $6.8

10 - 20 % 4 11 % $6.4

20 - 50 % 9 25 % $3.7

50 - 100 % 5 14 % $8.2

> 100 % 13 36 % $5.8

2.3.5 Market Data and Trends

This section presents historical market data for select BSCP. Historical market data include U.S. volumes formanufacturers’ shipments, foreign trade, and apparent consumption. Data were obtained from various years of Current IndustrialReports published by the U.S. Bureau of the Census. Table 2-7 provides data for common, building, and face bricks, andstructural clay tile, while Table 2-8 presents data for facing tile, glazed and unglazed brick, and vitrified clay and sewer pipe.

As shown in Table 2-7, the brick market shows an overall increasing trend in the quantity of shipments, exports, imports,as well as apparent consumption. This is evident from an examination of the average annual growth rates. The average annual

2-20

growth rate of brick shipments from 1993 to 1997 was 4.3 percent. For brick imports, the rate is 24.2 percent, much larger relativeto the average annual growth rates of shipments, exports, or apparent consumption.

This high average annual growth rate is due to the large increases in imports over the time period presented. Specifically,the imports of bricks increased significantly from about 9 million bricks in 1994 to 16.9 million bricks in 1995. Imports thenincreased to over 20 million bricks in 1996. Brick exports have remained between 42 and 43 million until the year 1997, whenexports peaked at a quantity of 46.5 million.

As shown earlier in Figure 2-2, the market for other structural clay products is much smaller than the brick market,however it still represents an important sector of the BSCP industry. As Table 2-8 shows, the average annual growth rate of selectstructural clay products is approximately -3.3 percent for the years 1993 to 1997, which is very close to the average annual growthrate for apparent consumption of these same products (-3.4 percent). While shipments and consumption decline over the timeperiod examined, the average annual growth rate of exports is extremely high at 236.9 percent. While this growth rate looks large,it is relatively small in absolute terms. This average growth rate is due, in particular, to a large increase in exports of vitrifiedsewer pipe from 1993 to 1994. In 1993, 287 short tons were exported from the U.S. and in 1994, exports dramatically rose to3,187 short tons. This is the main cause of such a large average annual growth rate of exports over the time period representedhere. Imports of structural clay products were small, never exceeding 1 thousand short tons in any year between 1993 and 1997.

To determine how significant international trade of bricks and structural clay products is, foreign trade concentration ratiosare calculated. Foreign trade concentration ratios demonstrate what share of domestically produced BSCP is exported and whatshare of apparent consumption is imported. Table 2-9 presents the concentration ratios for brick and structural clay tile and itshows that foreign trade of these products is small relative to the amounts produced and consumed domestically. Of the totalquantity produced, only six-tenths of a percent is exported on average. The share of bricks and structural clay tile consumed fromabroad is even less at 0.2 percent.

Table 2-7. Historical Data for Brick and Structural Clay Tile (103 bricksa): 1993 - 1997

2-21

YearShipment of

Bricks Exports ImportsApparent

Consumptionb

1993 6,623,300 42,643 10,170 6,590,827

1994 7,200,000 43,733 8,967 7,165,234

1995 7,243,900 43,627 16,867 7,217,140

1996 7,426,400 42,759 20,629 7,404,270

1997 7,837,600 46,518 20,267 7,811,349Average Annual Growth Rates

1993 - 1997 4.34% 2.28% 24.21% 4.38%Note: aBricks are 2-1/4 inch by 3-5/8 inch by 7-5/8 inch brick equivalent.

bApparent Consumption = Shipments of Bricks - Exports + ImportsSource: Same data sources as those used for Table 2-6 below.

Table 2-8. Historical Data for Select Structural Clay Products (short tons): 1993 - 1997

YearShipments of Select SCPa

Exports ImportsApparent

Consumptionb

1993 62,552 287 615 62,880

1994 53,959 3,187 915 51,687

1995 51,738 1,543 388 50,583

1996 47,943 1,610 345 46,678

1997 53,750 1,334 888 53,304 Average Annual Growth Rates

1993 - 1997 -3.27% 236.88% 34.40% -3.37%Note: aSCP refers to structural clay products.

bApparent Consumption = Shipments of Select SCP - Exports + ImportsSource: U.S. Department of Commerce, Bureau of the Census. 1998. Current Industrial Reports for Clay

2-22

Construction Products - Summary 1997. <http://www.census.gov:80/cir/www/mq32d.html>U.S. Department of Commerce, Bureau of the Census. 1996. Current Industrial Reports for Clay Construction Products - Summary 1995. <http://www.census.gov:80/cir/www/mq32d.html>U.S. Department of Commerce, Bureau of the Census. 1995. Current Industrial Reports for ClayConstruction Products - Summary 1994. <http://www.census.gov:80/cir/www/mq32d.html>

Table 2-10 presents the foreign trade concentration ratios for facing tile, glazed and unglazed brick, and vitrified clay andsewer pipe. The ratios for this market segment are low, but not as low as those calculated for brick and structural clay tile. In thiscase, 3 percent of domestically produced structural clay products is exported and approximately 1 percent of domesticconsumption is supplied from abroad. These calculated ratios shown in Tables 2-9 and 2-10 provide evidence of the minimalforeign trade of BSCP relative to the quantities produced and consumed domestically.

3-1

Table 2-9. Foreign Trade Concentration Ratios of Brick and Structural Clay Tile: 1993 - 1997

Year Exports/Production Imports/Apparent Consumption

1993 0.64% 0.15%

1994 0.61% 0.13%

1995 0.60% 0.23%

1996 0.58% 0.28%

1997 0.59% 0.26%

Average 0.60% 0.21%Source: U.S. Department of Commerce, Bureau of the Census. 1998. Current Industrial Reports for Clay


Table 2-10. Foreign Trade Concentration Ratios of Select Structural Clay Products: 1993 - 1997

Year Exports/Production Imports/Apparent Consumption

1993 0.46% 0.98%

1994 5.91% 1.77%

1995 2.98% 0.77%

1996 3.36% 0.74%

3-2

1997 2.48% 1.67%

Average 3.04% 1.18%Source: U.S. Department of Commerce, Bureau of the Census. 1998. Current Industrial Reports for Clay


3-1

3 ENGINEERING COST ANALYSIS

Production of BSCP results in emissions of HF, HCl, and HAP metals from the kilns used in the production process. Tocontrol these emissions, EPA has developed emission standards for these HAPs under the authority of Section 112 of the CAA. This section explains how the nationwide estimate of compliance costs associated with this regulation was developed. Section 3.1presents the development of model kilns, while Section 3.2 explains how the costs of controlling the kilns to meet the MACT floorare developed. Section 3.3 then describes how the compliance costs associated with model kilns are assigned to the kilns used inthe production of BSCP. The nationwide estimate of compliance costs associated with this rule is also provided in this section.

3.1 Development of Model Kilns

Based on information provided from EPA’s Section 114 questionnaires (hereafter called EPA’s facility database) of theBSCP industry, kilns in the BSCP facilities were determined to be potential major sources of HAP emissions. The varying sizesof kilns used by BSCP facilities necessitates using model kilns to simulate the effects of applying this regulation to the industry. A model kiln does not represent any particular kiln; rather it represents a range of kilns with similar characteristics that may beaffected by the regulation. Each kiln is characterized by type (either periodic or tunnel), size (based on production rate), and otherparameters that influence the estimates of emissions and control costs. Section 3.1.1 explains how model tunnel kilns weredeveloped and Section 3.1.2 discusses the development of model periodic kilns.

3.1.1 Model Tunnel Kilns

When the model kilns were developed, EPA’s facility database had production information for 287 of the 308 tunnel kilnsof varying size that are in operation at the 189 BSCP plants. To develop model tunnel kilns, size ranges of small, medium, large,and extra-large were defined based on a comparison of stack gas volumetric flow rates and kiln production rates. Based on thiscomparison, four model tunnel kilns were defined by their production rates (in tons per hour [tph]) as shown in Table 3-1. Toassign each tunnel kiln at BSCP facilities a size as defined in this report, the following criteria were used: kilns with capacities lessthan 8 tph were considered small kilns; those with capacities ranging from 8 tph to 12.5 tph were considered medium kilns; thosewith capacities ranging from 12.5 tph to 17.5 tph were considered large; and kilns with capacities greater than or equal to 17.5 tphwere considered extra-large kilns.

3-2

Table 3-1. Model Tunnel Kiln Definitions

Tunnel Kiln Size Range Production Rate (tons per hour)

Small 5

Medium 10

Large 15

Extra-large 20

Source: U.S. Environmental Protection Agency. May 10, 2000. “Model Plants - Kilns, Brick and Structural Clay Products Manufacturing Industry Maximum Achievable Control Technology (MACT)

Standard Support”, Memorandum from Brian Shrager and Mike Abraczinskas, Midwest Research Institute, to Mary Johnson, Environmental Protection Agency, Office of Air Quality Planning andStandards, Emissions Standards Division.

A total of 269 tunnel kilns (for which production and capacity information are available) were operating in 1999 at 155plants. Table 3-2 specifies the number of tunnel kilns assigned to each model tunnel kiln size. The number of kilns by model sizeincreases as the size of the kiln decreases. Separate model kilns were developed for tunnel kilns that duct some or all of the kilnexhaust to sawdust dryers prior to release to the atmosphere. Table 3-3 shows the number of tunnel kilns/sawdust dryers assignedto each model size.

Table 3-2. Number of Tunnel Kilns by Model Size

Small Medium Large Extra-large Total

138 82 43 6 269


Standard Support”, Memorandum from Brian Shrager and Mike Abraczinskas, Midwest Research Institute, to Mary Johnson, Environmental Protection Agency, Office of Air Quality Planning and

3-3

Standards, Emissions Standards Division.

Table 3-3. Number of Tunnel Kilns/Sawdust Dryers by Model Size

Small Medium Large Extra-large Total

11 5 2 1 19



3.1.2 Model Periodic Kilns

Across the industry, there are 219 periodic kilns (for which capacity could be estimated) in operation. Unlike tunnel kilns,insufficient data are available to allow EPA to compare flow rates to production rates for model periodic kilns. Nominalproduction rates, based on the limited available kiln capacity data, of 0.25 tph and 1 tph were chosen for small and large modelperiodic kilns, respectively. Table 3-4 shows the number of kilns assigned to small and large model periodic kilns.

Table 3-4. Number of Periodic Kilns by Model Size

Small Large Total

167 52 219Source: U.S. Environmental Protection Agency. May 10, 2000. “Model Plants - Kilns, Brick and Structural Clay Products Manufacturing Industry Maximum Achievable Control Technology (MACT)


3 Standard brick equivalent (SBE) is equal to a 4 pound brick and is the standard measure used in the engineering analysis.

3-6

3.2 Costs of Control

This section provides the estimated costs of installing and operating control technologies that meet the MACT floor. Thecost of the add-on control devices varies based on the size and the type of kiln upon which it will be installed. Table 3-5summarizes the total and annualized capital costs, operating and maintenance expenses, and total annual costs by model kiln. These costs have been scaled to the fourth quarter of the year 2000. For the purpose of this analysis, those major sources that mustreduce emissions to comply with the standard are expected to install and operate a control on each existing tunnel kiln with acapacity greater than or equal to 10 tph. Existing tunnel kilns capacities below the 10 tph level and existing periodic kilns will notincur costs related to this regulation. Though all tunnel kilns defined as small required no control equipment to be installed, costswere developed to determine what it would have cost a facility to install and operate a control device.

3.3 National Control Cost Estimates

As discussed in Section 3.2, the Agency developed facility-specific estimates of total annual compliance costs associatedwith pollution control equipment needed by the point sources to meet the MACT emission limits. This was done by summing thetotal annual compliance costs over all kilns at each facility. The nationwide annual compliance cost estimate for the affectedsources at BSCP facilities is estimated to be $23.96 million, or less than $0.02 per standard brick equivalent (SBE)3 produceddomestically. Note however, that these cost estimates do not account for behavioral responses (i.e., changes in price and outputrates).

Table 3-5. Emissions Control Costs of the BSCP Manufacturing NESHAP ($103)

Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost

AnnualizedComplianceTesting Cost

AnnualReporting

Cost

TotalAnnualized

Cost2 small $0 $0 $0 $0 $0 $04 small $0 $0 $0 $0 $0 $03 small $0 $0 $0 $0 $0 $0

66 large $0 $0 $0 $0 $0 $08 large $0 $0 $0 $0 $0 $0

148 large $0 $0 $3,165 $4,026 $16,082 $23,273110 large $0 $0 $0 $0 $0 $0

(Table 3-5 Continued)

Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-7

111 large $0 $0 $0 $0 $0 $0112 large $0 $0 $0 $0 $0 $0130 large $0 $0 $0 $0 $0 $0149 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,188133 large $215,468 $325,630 $6,330 $8,052 $16,082 $571,562

7 large $0 $0 $0 $0 $0 $05 large $220,724 $327,106 $6,330 $8,052 $16,082 $578,2946 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,128

146 large $0 $0 $0 $0 $0 $012 large $0 $0 $0 $0 $0 $013 large $0 $0 $6,330 $8,052 $16,082 $30,46411 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10574 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10510 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,128

138 large $0 $0 $0 $0 $0 $082 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,188

131 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,128132 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,18881 large $271,392 $397,104 $9,495 $12,078 $16,082 $706,15172 large $125,004 $193,262 $3,165 $4,026 $16,082 $341,53973 large $220,724 $327,106 $6,330 $8,052 $16,082 $578,29451 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10516 small $0 $0 $0 $0 $0 $017 small $110,362 $163,553 $3,165 $4,026 $16,082 $297,188

105 small $0 $0 $0 $0 $0 $0152 small $0 $0 $0 $0 $0 $018 small $0 $0 $0 $0 $0 $0

181 large $0 $0 $0 $0 $0 $019 small $180,928 $264,736 $6,330 $8,052 $16,082 $476,12814 small $0 $0 $0 $0 $0 $015 small $0 $0 $0 $0 $0 $020 small $90,464 $132,368 $3,165 $4,026 $16,082 $246,10533 small $0 $0 $0 $0 $0 $034 small $0 $0 $3,165 $4,026 $16,082 $23,273

134 small $271,392 $397,104 $9,495 $12,078 $16,082 $706,15164 small $0 $0 $0 $0 $0 $0


Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-8

83 small $0 $0 $0 $0 $0 $084 small $90,464 $132,368 $3,165 $4,026 $16,082 $246,10521 small $0 $0 $0 $0 $0 $0

188 large $0 $0 $0 $0 $0 $0189 large $0 $0 $0 $0 $0 $0153 small $0 $0 $0 $0 $0 $023 small $0 $0 $0 $0 $0 $065 small $0 $0 $0 $0 $0 $024 small $0 $0 $0 $0 $0 $0

161NR small $0 $0 $0 $0 $0 $0162NR small $0 $0 $0 $0 $0 $0163NR small $0 $0 $0 $0 $0 $0

158 small $0 $0 $0 $0 $0 $029 large $0 $0 $0 $0 $0 $028 large $0 $0 $0 $0 $0 $031 large $180,928 $264,736 $12,660 $16,104 $16,082 $490,510

150 large $0 $0 $6,330 $8,052 $16,082 $30,46477 large $0 $0 $3,165 $4,026 $16,082 $23,27367 large $0 $0 $0 $0 $0 $070 large $0 $0 $6,330 $8,052 $16,082 $30,46425 large $0 $0 $3,165 $4,026 $16,082 $23,27332 large $0 $0 $0 $0 $0 $026 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,18827 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,12830 large $0 $0 $0 $0 $0 $078 small $220,724 $327,106 $6,330 $8,052 $16,082 $578,29463 small $0 $0 $0 $0 $0 $038 small $0 $0 $0 $0 $0 $0

174NR small $0 $0 $0 $0 $0 $0169NR large $220,724 $327,106 $6,330 $8,052 $16,082 $578,294167NR large $0 $0 $0 $0 $0 $0165NR large $0 $0 $0 $0 $0 $0166NR large $180,928 $264,736 $6,330 $8,052 $16,082 $476,128168NR large $125,004 $193,262 $3,165 $4,026 $16,082 $341,539173NR large $220,724 $327,106 $6,330 $8,052 $16,082 $578,294

41 large $220,724 $327,106 $6,330 $8,052 $16,082 $578,294


Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-9

164NR large $90,464 $132,368 $3,165 $4,026 $16,082 $246,105170NR large $220,724 $327,106 $6,330 $8,052 $16,082 $578,294171NR large $200,826 $295,921 $6,330 $8,052 $16,082 $527,211172NR large $215,468 $325,630 $6,330 $8,052 $16,082 $571,562178NR small $0 $0 $0 $0 $0 $0

71 small $0 $0 $0 $0 $0 $0177NR small $0 $0 $0 $0 $0 $0

9 small $0 $0 $0 $0 $0 $035 small $0 $0 $0 $0 $0 $036 small $90,464 $132,368 $6,330 $8,052 $16,082 $253,296

145 large $0 $0 $0 $0 $0 $0125 large $0 $0 $0 $0 $0 $097 large $271,392 $397,104 $9,495 $12,078 $16,082 $706,15198 large $200,826 $295,921 $6,330 $8,052 $16,082 $527,211

127 large $0 $0 $0 $0 $0 $0126 large $0 $0 $0 $0 $0 $094 large $0 $0 $0 $0 $0 $092 large $0 $0 $0 $0 $0 $0

118 large $0 $0 $0 $0 $0 $0129 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,188143 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,12899 large $0 $0 $0 $0 $0 $0

151 large $0 $0 $3,165 $4,026 $16,082 $23,27395 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,188

128 large $0 $0 $3,165 $4,026 $16,082 $23,27396 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10593 large $0 $0 $0 $0 $0 $0

175NR small $0 $0 $0 $0 $0 $0104 small $0 $0 $0 $0 $0 $037 small $0 $0 $0 $0 $0 $0

139 small $0 $0 $0 $0 $0 $0135 small $110,362 $163,553 $3,165 $4,026 $16,082 $297,188142 small $0 $0 $0 $0 $0 $0183 small $0 $0 $0 $0 $0 $040 small $0 $0 $0 $0 $0 $050 small $0 $0 $0 $0 $0 $0


Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-10

42 small $90,464 $132,368 $3,165 $4,026 $16,082 $246,105107 small $0 $0 $0 $0 $0 $0109 small $0 $0 $0 $0 $0 $0106 small $0 $0 $0 $0 $0 $0108 small $0 $0 $0 $0 $0 $0184 small $0 $0 $0 $0 $0 $0113 small $0 $0 $0 $0 $0 $079 small $0 $0 $0 $0 $0 $0

114 small $0 $0 $0 $0 $0 $087 small $0 $0 $0 $0 $0 $088 small $0 $0 $0 $0 $0 $043 small $0 $0 $0 $0 $0 $0

156 small $0 $0 $0 $0 $0 $0122 small $0 $0 $0 $0 $0 $0136 small $0 $0 $0 $0 $0 $068 small $0 $0 $0 $0 $0 $069 small $0 $0 $0 $0 $0 $044 small $0 $0 $0 $0 $0 $0

176NR small $0 $0 $0 $0 $0 $0123 large $0 $0 $0 $0 $0 $086 large $0 $0 $0 $0 $0 $0

154 large $0 $0 $6,330 $8,052 $16,082 $30,464137 small $361,856 $529,472 $12,660 $16,104 $16,082 $936,174159 small $0 $0 $0 $0 $0 $045 small $0 $0 $0 $0 $0 $089 small $0 $0 $0 $0 $0 $0

157 small $180,928 $264,736 $6,330 $8,052 $16,082 $476,12848 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10549 large $345,728 $520,368 $9,495 $12,078 $16,082 $903,751

179 small $0 $0 $0 $0 $0 $076 small $0 $0 $0 $0 $0 $0

185 small $0 $0 $0 $0 $0 $090 small $0 $0 $3,165 $4,026 $16,082 $23,273

140 small $0 $0 $0 $0 $0 $0160NR small $0 $0 $0 $0 $0 $0

115 small $0 $0 $0 $0 $0 $0


Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-11

141 small $0 $0 $0 $0 $0 $046 small $0 $0 $0 $0 $0 $091 small $0 $0 $0 $0 $0 $080 small $0 $0 $0 $0 $0 $039 small $0 $0 $0 $0 $0 $0

116 small $0 $0 $0 $0 $0 $0186 large $0 $0 $0 $0 $0 $0187 large $0 $0 $0 $0 $0 $0117 small $0 $0 $0 $0 $0 $047 small $0 $0 $0 $0 $0 $0

144 large $0 $0 $0 $0 $0 $0121 large $0 $0 $0 $0 $0 $0120 large $0 $0 $0 $0 $0 $0155 small $0 $0 $3,165 $4,026 $16,082 $23,273119 small $90,464 $132,368 $3,165 $4,026 $16,082 $246,105

180NR small $0 $0 $0 $0 $0 $0124 small $0 $0 $0 $0 $0 $075 small $0 $0 $0 $0 $0 $060 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,18852 large $180,928 $264,736 $6,330 $8,052 $16,082 $476,12853 large $125,004 $193,262 $3,165 $4,026 $16,082 $341,539

100 large $0 $0 $0 $0 $0 $061 large $90,464 $132,368 $3,165 $4,026 $16,082 $246,10556 large $0 $0 $0 $0 $0 $022 large $0 $0 $0 $0 $0 $01 large $0 $0 $3,165 $4,026 $16,082 $23,273

85 large $0 $0 $0 $0 $0 $057 large $0 $0 $0 $0 $0 $058 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,18859 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,188

101 large $110,362 $163,553 $3,165 $4,026 $16,082 $297,18854 large $220,724 $327,106 $6,330 $8,052 $16,082 $578,294

102 large $0 $0 $0 $0 $0 $0103 large $0 $0 $0 $0 $0 $062 large $0 $0 $0 $0 $0 $055 large $200,826 $295,921 $6,330 $8,052 $16,082 $527,211


Facility Number

CompanySize

AnnualizedCapital

Cost

AnnualO&MCost

AnnualMonitoring

Cost


AnnualReporting

Cost

TotalAnnualized

Cost

3-12

182NR small $0 $0 $0 $0 $0 $0147 small $0 $0 $0 $0 $0 $0

Source: U.S. Environmental Protection Agency. November 21, 2002. “BCSP and Clay Ceramics NESHAP: Final Rule Economic Inputs for Brick andStructural Clay Products Manufacturing.” Memorandum from Brian Shrager, Midwest Research Institute, to Mary Johnson, EnvironmentalProtection Agency, Office of Air Quality Planning and Standards, Emissions Standards Division.

4-1

4 ECONOMIC IMPACT ANALYSIS

The proposed rule to control the release of HAPs from brick and structural clay product facilities will directly (throughimposition of compliance costs) or indirectly (through changes in market prices) affect the entire U.S. industry. Implementation ofthe proposed rule will increase the costs of producing BSCP at affected plants. These costs will vary across facilities dependingon their physical characteristics and baseline controls. The response by producers to these additional costs will determine theeconomic impacts of the regulation. Specifically, the cost of the regulation may induce some owners to change their currentoperating rates or to close their operations. These choices affect, and in turn are affected by, the market prices for bricks andstructural clay products.

This section describes the data and approach used to estimate the economic impacts of this proposed regulation. Section 4.1 presents the inputs for the economic analysis, including producer characterization, market characterization, andcompliance costs of the regulation. Section 4.2 describes the methodological approach to estimating the economic impacts on theindustry, and Section 4.3 presents the results of the economic impact analysis. Section 4.4 provides an economic analysis of newsources that are projected to be built for the production of BSCP.

4.1 Economic Analysis Inputs

Inputs to the economic analysis are a baseline characterization of the producers of BSCP that includes their productionlevels and capacity, their markets, and the estimated costs of complying with the proposed regulation. There are two distinctmarkets in which the BSCP facilities may operate in depending on the products they produce. The economic analysis thereforeexamines both. The market for bricks is analyzed separately from the market for other structural clay products.

4.1.1 Producer Characterization

The baseline characterization of BSCP producers is based principally on the information in EPA’s facility database. Theinformation contained in the EPA facility database was based on industry’s response to an Information Collection Request (ICR)and in general, describes the facilities and their production activities for the year 1996. This database, along with average plantcapacity utilization rates and volume of shipments data gathered from various Bureau of the Census publications, were used todevelop a 1999 baseline characterization of the brick and structural clay products markets. Using the 1996 baselinecharacterization would not be adequate since new kilns that are estimated to incur compliance costs have been installed at somefacilities since 1996. Because the emissions from these kilns may have to be controlled to comply with this regulation, they areincluded in the analysis.

4 The average capacity utilization rate for SIC 3251 (Brick and Structural Clay Tile) in the Current Industrial Reports - 1998 Survey of Plant Capacity (U.S.Census Bureau, 2000) was used in this analysis since a majority of the BSCP facilities are owned by companies in this SIC code category.

5 Facility size is based on whether it is owned by a small or large company, as defined by the Small Business Administration size standards.

4-2

The nature of the BSCP industry changed during the latter half of the 1990s. Market demand steadily increased throughout1997 and 1998, thereby leading to increasing plant capacity utilization as well as the installation of new kilns to boost production. Since EPA’s facility database includes information on the BSCP industry for the year 1996, projections about facility productionand capacity were made in order to reflect the industry as it existed in 1999. While the average capacity utilization rate for SIC3251 in 1996 was 87 percent, it increased to over 90 percent in 1997 and continued to grow4. To account for the increased outputof bricks and structural clay products in 1999, the production levels of those facilities with significantly low capacity utilizationrates in 1996 were increased based on the 1998 average capacity utilization rate for the industry (94 percent), the latest year forwhich this measure is available.

In addition, some facilities included in the database were missing data. These facilities were either:

• missing production or capacity data; or

• missing both production and capacity data.

For those facilities that were missing either production or capacity data, the 1998 average capacity utilization rate for SIC 3251was used to estimate the missing information. For those facilities for which no production or capacity data were available (all ofwhich were brick manufacturing facilities), the residual difference between the 1999 brick production total reported in the CurrentIndustrial Reports for Clay Construction Products (U.S. Census Bureau, 2000) and the production total of the brick facilities inthe database was allocated across facilities based on whether they are considered small or large5. The allocation of the residualbrick production was based on a ratio of the average production quantities for the small and large brick manufacturing facilities inthe database. Additionally, the production capacity data for these facilities were based on the average capacity utilization rates ofthe small and large facilities in the database.

These facility-specific data on existing major sources were supplemented with secondary information on bricks andstructural clay products from the Brick Industry Association (BIA), market prices for bricks and for structural clay productsderived from various publications released by the U.S. Bureau of the Census, and BSCP cost equations developed for this analysis(as described fully in Appendix B).

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4.1.2 Brick and Structural Clay Product Markets

Table 4-1 provides baseline data on the U.S. brick and structural clay products markets used in this analysis. The marketprice for bricks was derived by dividing the 1999 value of brick shipments by the quantity of bricks produced in that year (U.S.Census Bureau, 2000). The market price for structural clay products was calculated in a similar manner. Market productionvolumes for bricks and for structural clay products are the sum of U.S. production and foreign imports. The Current IndustrialReports for Clay Construction Products (U.S. Bureau of the Census, 2000) reports U.S. production of bricks and structural clayproducts for 1999. Foreign trade data on exports and imports of these products were also taken from the same publication.

Table 4-1. Baseline Characterization of U.S. Brick and Structural Clay Products Markets: 1999

Brick Structural Clay ProductsMarket price ($/SBEa) $0.19 $0.80Market production (1,000 SBE) 8,573,450 316,586 Domestic production (1,000 SBE) 8,552,821 310,706 Foreign Trade (1,000 SBE)

Exports 42,759 1,945 Imports 20,629 5,880

Note: aSBE means standard brick equivalent, based on a 4 pound brick. Prices are based on 1999 value of shipments divided by 1999 market production. Source: U.S. Department of Commerce, Bureau of the Census. 1999. Current Industrial Reports for Clay

Construction Products - Summary 1999.

4.1.3 Regulatory Control Costs

The Agency developed compliance cost estimates for each of the 189 BSCP manufacturing facilities potentially affectedby the regulation. These estimates reflect the “most-reasonable” scenario for this industry in that they estimate the costs ofinstalling and operating pollution control equipment. Though the baseline characterization of the brick and structural clayproducts manufacturing facilities represents the industry in year 1999, the regulatory control costs are current as of the 4th quarterof year 2000. For this source category, compliance costs for the facilities arise from the installation of dry injection fabric filterson tunnel kilns with design capacities equal to or greater than 10 tph, as well as the operation, maintenance, and testing of thispollution control equipment. Other costs may stem from monitoring, recordkeeping, and reporting of emissions as well as testingcosts. These cost estimates serve as inputs to the economic analysis and affect the operating decisions for each potentially affected

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facility. A total of 68 facilities are expected to incur positive compliance costs to comply with the NESHAP that totaled $23.96million.

Revenues for each facility were estimated based on the market prices for bricks and structural clay products shown inTable 4-1 and their reported production levels from the 1999 baseline producer characterization.

4.2 Economic Impact Methodology

This section summarizes the Agency’s economic approach to modeling the responses by producers of BSCP and marketsto the imposition of this proposed regulation. In conducting an economic analysis, the alternatives available to each producer inresponse to the regulation and the context of these choices are important in determining the economic impacts. Based on theregulatory control cost estimates, the Agency has evaluated the economic impacts of this NESHAP using a market-based approachthat gives producers the choice of whether to continue producing BSCP and, if so, to determine the optimal level consistent withmarket signals.

The Agency’s approach is soundly based on standard microeconomic theory, employs a comparative statics approach, andassumes certainty in relevant markets. Prices and quantities are determined in perfectly competitive markets for both bricks andstructural clay products. Production decisions involve whether a firm with a plant and equipment already in place purchasesinputs to produce output. These are sometimes called short-run decisions since the plant and equipment are fixed. A profit-maximizing firm will operate existing capital as long as the market price for its output exceeds its per-unit variable productioncosts. As long as the market price even marginally exceeds the average variable (operating) costs, the firm will cover not only thecost of its variable inputs but also part of its capital costs. Thus, in the short run, a profit-maximizing firm will not pass up anopportunity to recover even part of its fixed investment in the plant and equipment. However, in the long run, the firm must coverall of its fixed investment in the plant and equipment. Under this more stringent condition, the market price must exceed itsaverage total costs, which include capital and variable input costs. For this analysis, the Agency employs the short-run criteria toestimate the economic impacts of the proposed NESHAP.

The Agency developed cost curves for each type of product at affected facilities. Given the capital in place, each productat an affected facility is characterized by an upward-sloping supply function, as shown in Figure 4-2. The supply function liesalong the same locus of points as the marginal cost curve, which is bounded by zero and by the technical capacity at the facility. The facility owner is willing to supply output according to this schedule as long as market price is sufficiently high to coveraverage variable costs. If the market price falls below the average variable costs, then the firm’s best response is to cease

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Figure 4-2. Supply Curve for Affected Facilities

production because total revenue does not cover total variable costs of production. In other words, when price is less than average

variable costs, the supply curve lies along the vertical axis because zero quantity is supplied at those prices.

The individual facility-level supply decisions can be aggregated to develop the market supply curve. This economicanalysis assumes that prices for bricks and structural clay products are determined in perfectly competitive markets (i.e.,individual facilities have negligible power over the market price of the products and thus take the prices as “given” by the market). As shown in Figure 4-3(a), under perfect competition, market prices and quantities are determined by the intersection of marketsupply and demand curves. The initial baseline scenario consists of a market price and quantity (P, Q) that is determined by thedownward-sloping market demand curve (DM) and the upward-sloping market supply curve (SM) that reflects the sum of theindividual supply curves of affected and unaffected facilities. Now consider the effect of the regulation on the baseline scenario. Incorporating the regulatory control costs will involve shifting upward the supply curve for each affected facility by the per-unitcompliance cost (operating and maintenance plus annualized capital). As a result of the upward shift in the supply curve for each

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affected facility, the market supply curve for each product will shift upward to reflect the increased costs of production at affectedfacilities.

The estimated per-unit total annual compliance cost of the MACT standards is incorporated into the baseline marketscenario as shown in Figure 4-3(b). In the baseline scenario without the MACT standards, at the projected price, P, the industrywould produce total output, Q, with affected facilities producing the amount qd and unaffected facilities accounting for Q minus qd,or qi. The regulation raises the average total production cost (annualized capital costs plus annual operating and maintenancecosts) of affected facilities causing their supply curves to shift upward from Sd to Sd' and the market supply curve to shift upwardto SM'. At the new equilibrium with the regulation, the market price increases from P to P' and market output (as determined fromthe market demand curve, DM) declines from Q to Q'. This reduction in market output is the net result from reductions at affectedfacilities and increases at unaffected facilities.

To estimate the economic impacts of the regulation under this scenario, the conceptual model described above wasoperationalized in a Lotus 1-2-3 multiple spreadsheet model for both the brick and structural clay product markets. Appendix Bprovides the details of the operational market model for this economic analysis. In summary, this model characterizes domesticand foreign producers and consumers of each product and their behavioral responses to the imposition of the regulatorycompliance costs. These costs are expressed per standard brick equivalent (SBE) for each facility and serve as the input to themarket model, or the “cost shifters” of the baseline supply curves at the facility. Given these costs for directly affected facilities,the model determines a new equilibrium solution with higher market prices and reductions in output of each product.

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4-8

P

Sd

qd qi QFacilities

Directly Affected

Si SM

DM

P P+ =

FacilitiesIndirectly Affected

Market

a) Baseline Equilibrium

P

q′ q Q′Facilities

Directly Affected

Si SM′

DM

P P+ =

FacilitiesIndirectly Affected

Market

b) With-Regulation Equilibrium

P′

Sd

q q′ Q

SM

P′ P′

S′d

Figure 4-3. Market Equilibrium Without and With Regulation

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4.3 Economic Impact Results

This section provides the economic impacts of the regulation under the approach described in Section 4.2. The modelresults are summarized below as market-, industry-, and society-level impacts due to the regulation.

4.3.1 Market-Level Results

Table 4-2 provides the market-level impacts of the regulation, which include the market adjustments in price and quantityfor bricks and structural clay products and the changes in foreign trade. The increased cost of controlling HAPs causes affectedproducers to increase the price of bricks. As price increases, consumers may buy fewer bricks and instead purchase substitutehouse siding materials such as wood or vinyl siding. The industry has indicated that stron competition exist between brick andvinyl siding products. These price and output changes affects equilibrium in the brick market. No structural clay productproducers face costs of controlling HAPs, however, so price and output of structural clay products are unaffected by theregulation. The proposed regulation will increase the price of bricks and reduce market output. The market price for bricks isexpected to increase by 0.9 percent, while market quantity will decline by 1.4 percent, or 117 million SBE per year. The reductionin market quantities of bricks are the net effect of reductions in domestic production and increases in foreign imports.

The NESHAP impacts foreign trade of bricks by reducing exports and increasing imports. As shown in Table 4-2, exportsof bricks from the U.S. are expected to decline by 1.4 percent (or 584 thousand SBE per year). Alternatively, imports of bricks tothe U.S. are expected to increase by 1.4 percent (or 286 thousand SBE per year). Once again, because there is no change in pricein the structural clay products market, exports and imports in this market are unaffected.

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Table 4-2. Summary of Market-Level Impacts of the Proposed NESHAP: 1999

BaselineWith

RegulationChanges from Baseline

Absolute PercentBrick Market price ($/SBE) $0.19 $0.19 $0.002 0.9%

Market output (1,000 SBE/yr) 8,573,450 8,456,366 -117,084 -1.4%Domestic production

(1,000 SBE/year)8,552,821 8,435,451 -117,370 -1.4%

Exports 42,759 42,175 -584 -1.4%Imports 20,629 20,915 286 1.4%

Structural Clay ProductsMarket price ($/SBE) $0.80 $0.80 $0.000 0.0%Market output (1,000 SBE/yr) 316,586 316,586 0 0.0%Domestic production 310,706 310,706 0 0.0%

Exports 1,945 1,945 0 0.0%Imports 5,880 5,880 0 0.0%

Source: U.S. Department of Commerce, Bureau of the Census. 1998. Current Industrial Reports for Clay Construction Products - Summary 2000.

4.3.2 Industry-Level Results

Table 4-3 summarizes the national-level industry impacts associated with this regulation. Industry-level impacts includean evaluation of the changes in revenue, costs, profits, potential facility closures, and the change in employment attributable toprojected closures and reductions in production of BSCP from affected facilities.

The industry revenues and costs change as brick prices and production levels adjust to the imposition of the regulation. While the initial engineering cost estimate of the rule is $23.9 million, after accounting for market adjustments, the industry isexpected to incur $22.5 million annually in regulatory compliance costs. The primary reason for the difference in the engineeringcost estimate of the rule and the resulting regulatory cost after accounting for market adjustments is the estimation that 2 facilitieswould close and not incur regulatory cost. As shown in Table 4-3, based on projected individual and market responses, theeconomic analysis estimates industry profits to decrease by $8.7 million. The reduction in profits results from a reduction in

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revenues and an increase in costs due to the regulation. This reduction in profits is less than the regulatory costs brick producersincur because they reduce their production, resulting in higher market prices per SBE, which effectively shifts a portion of theregulatory burden onto consumers. In addition to the reduction in revenues, increase in costs, and reduction in profits, theeconomic analysis predicts a decline in employment by 167 full-time equivalents due to the proposed regulation.

Table 4-3. National-Level Industry Impacts Summary of the Proposed NESHAP: 1999

BaselineWith

Regulation

Changes from Baseline

Absolute PercentRevenues ($103/yr) $1,873,601 $1,8663,061 -$7,540 -0.4%Costs ($103 /yr) $1,787,415 $1,788,545 $1,129 0.1%

Regulatory control costs $0 $22,512 $22,512 NAProduction costs $1,787,415 $1,766,032 - $21,383 -1.2%

Profits ($103/yr) $86,185 $77,516 -$8,669 -10.1%Employment (FTEs) 12,230a 12,063 -167 -1.0%Operating facilities (#) 189 187 -2 -1.1%

Note: NA means not applicable.A. The change in profit is based on a ratio of baseline profits to baseline vale of shipments. This ratio is applied to the change in value of shipmentsto derive the estimated change in profits.B. FTE refers to full-time equivalents. The change in employment is based on a ratio of baseline employment to baseline production. This ratio isapplied to the change in production to derive the change in employment.CRepresents total number of employees in 167 facilities that provided data.

Table 4-3 also shows that the economic model projects closures of BSCP facilities associated with imposition of the rule. Two facilities are projected to close, neither of which is owned by a small business. It is important to point out that the estimatesof facility closures are sensitive to the accuracy of the baseline characterization of the BSCP facilities and the estimation ofincremental compliance costs for these plants. Uncertainty regarding the accuracy of the closure estimates is introduced throughthe use of a generalized cost function to project baseline operating costs at specific facilities and the assumptions required toproject production and capacity and compliance costs at each facility. These uncertainties are likely to influence the specific typeof plant projected to close more so than the aggregate estimate of closures.

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Table 4-4 presents distributional industry impacts of the rule that are not apparent from the aggregate national levelindustry impacts shown in Table 4-3. Impacts are examined across those firms that are projected to experience a loss in profits,and a gain in profits due to the imposition of the regulation. Of the 189 facilities in the BSCP source category, 55 facilities (29percent) are expected to lose profits, while 134 (71 percent) are expected to gain profits due to the increase in market price forbricks. Thus, the industry-level loss in profits of $8.7 million is the net measure of profit losses at the 55 facilities (totaling $15.0million) and the profit gains at the 134 facilities (totaling $6.4 million).

As shown, the BSCP facilities with profit losses are slightly larger in terms of capacity utilization, generate larger volumesof BSCP, and incur much higher incremental compliance costs (in aggregate, per 1,000 SBE) than those facilities with profitincreases. In addition, Table 4-4 shows that the negatively affected facilities, as a group, slightly reduced their capacity utilizationfrom 84.6 percent in baseline to 80.2 percent, while positively affected facilities, as a group, slightly increased their capacityutilization from 74.4 percent in baseline to 75.1 percent with the rule. Employment is also impacted by the regulation. It isestimated that employment will decline by 167 employees due to the rule.

4.3.3 Social Costs of the Regulation

The value of a regulatory action is traditionally measured by the change in economic welfare that it generates (seeAppendix C for a discussion on economic welfare). Welfare impacts resulting from this regulation on U.S. society will extend tothe many consumers and producers of bricks. Because the regulation imposes no costs on structural clay product facilities, thereare no welfare effects on consumers and producers of structural clay products. Brick consumers will experience welfare impactsdue to the adjustments in market prices and consumption levels of brick that result from imposition of the regulation. Producerwelfare impacts result from the changes in revenues to brick producers associated with the imposition of the rule and thecorresponding changes in production and market prices.

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Table 4-4. Summary of Distributional Industry Impacts of the Proposed BSCPNESHAP: 1999

With ProfitLossa

With ProfitGain

Total,U.S.

Number 55 134 189

Capacity (1,000 SBE)

Total 5,575,870 5,563,776 11,139,646

Per Facility 101,379 41,521 58,940

Incremental Compliance Costs

Total ($1,000/yr) $22,179 $334 $22,512

Per 1,000 SBE $5.08 $0.04 $2.58

Capacity Utilization

Baseline 84.6% 74.4% 77.3%

With Regulation 80.2% 75.1% 78.5%

Change in Profits ($103/yr) -$15,037 $6,367 -$8,669Note: aThe incremental compliance costs for the facilities with projected profit loss includes the estimated

costs of facilities that are projected to close.

Based on applied welfare economics principles, Table 4-5 presents the estimates of the social costs and their distributionby stakeholder. The social cost of the proposed NESHAP is estimated to be $23.3 million annually and is distributed acrossconsumers and producers of bricks based on the projected market adjustments. Consumers of BSCP are expected to incur $14.7million annually due to the increase in prices and reductions in consumption. This burden is borne mostly by domestic consumers($14.6 million) as compared to foreign consumers ($0.1 million). Domestic and foreign structural clay product consumers are notaffected by this rule.

Producers are expected to absorb $8.6 million annually due to increased costs and reduction in revenues resulting fromchanges in market prices and output. Domestic brick producers lose about $8.7 million annually, which equals their decrease in

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profits, while the foreign producers of brick gain by almost $0.1 million due to the increase in U.S. price for bricks. Once again,neither the domestic or foreign structural clay product producers are impacted by the regulation. Hence, they experience nochanges in welfare.

Table 4-5. Distribution of Social Costs Associated with the Proposed NESHAP: 1999Stakeholder Change in Value ($ 103)

Consumer surplus, total -$14,695 Domestic Brick -$14,621 Structural Clay Products $0 Foreign Brick -$74 Structural Clay Products $0

Producer surplus, total -$8,633 Domestic Brick -$8,669 Structural Clay Products $0 Foreign Brick $36 Structural Clay Products $0Social Costs of Regulation $23,328

4.4 New Source Analysis

The Agency projects 13 new 15 tph and 2 new 7.5 tph kilms to begin operation during the five year period followingpromulgation of this NESHAP. New suppliers of BSCP have an investment decision: whether to commit to a new facility of a

6 For simplicity, impacts are considered for one future time period.

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given scale. They have no fixed factors and thus may select any technically feasible facility configuration. Of course, they mayalso elect not to make an investment in this industry. Economic theory suggests investors are expected to invest in a project whenthe discounted value of the expected stream of profits over the lifetime of the investment exceeds the costs of the investment, oralternatively when the internal rate of return (IRR) is greater than the opportunity cost of capital. Commodity prices andproduction costs are central to this decision.

The competitive model of price formation is provided in Figure 4-4. In the figure, the willingness of existing suppliers toproduce alternative rates of bricks and structural clay products is represented by SE and the demand for BSCP is shown as D0. Theequilibrium market price, P0, is determined by the intersection of these curves. If this price exceeds the annualized capital costsdiscounted at the opportunity cost of capital for an investment in this risk class divided by the profit-maximizing output rate plusthe unit cost of other inputs, the producer commits to a new facility; otherwise no investment occurs. Figure 4-4 shows a constantcost industry where market price is exactly equal to the unit cost of new facilities, SN.

In a growing industry, the demand for the commodity is shifting outward (e.g., to D1), placing upward pressure on pricesand providing the incentive for investors to add new productive capacity.6 As new capacity enters the market, the new equilibriumprice is P1, which is exactly equal to the unit cost of supply from new facilities. In this example, it is the same value as the oldprice, P0. The new equilibrium quantity, Q1, includes the additional output supplied by new sources: (Q1–Q0).

The NESHAP will increase existing suppliers’ costs of producing BSCP if they use tunnel kilns that exceed the 10 tphthreshold. This is represented by a shifting of existing supply, SE, up. It will also increase the costs of supply from new facilitiesusing tunnel or periodic kilns regardless of their production rate. All new kilns are to be controlled according to this NESHAP. These increases in costs will place upward pressure on prices. As shown in Figure 4-5, with demand curve, D1, prices would beexpected to increase with shifts in supply until the price of bricks and structural clay products, P1N, is equal to the unit cost ofsupply from new facilities including the cost of the NESHAP. However, as shown in Figure 4-6, no new capacity expansion willtake place in the future time period if the per-unit compliance costs at new facilities exceeded P1N. Thus, the simple analyticspresented suggest that the rule will likely cause investors to delay construction of new facilities until the price increase is justenough to cover all the costs of production.

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lbs/year

$/lb

Q0

P0 = P1

Q1

D0

D1

SE

SN

Figure 4-4. Baseline Equilibrium without Regulation

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lbs/year

$/lb

Q1

P1

Q′1

D1

SE

SN

S′NP1′

S′E

Figure 4-5. With-Regulation Equilibrium Case 1: New Sources Added

lbs/year

$/lb

Q1

P1

D1

SE

SN

S′N

Q′1

S′E

P1′

Figure 4-6. With-Regulation Equilibrium Case 2: No New Sources Added

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Given the uncertainty about new brick facility unit costs (production and compliance) and future market conditions, theAgency is limited to general assessments of the rule’s impact on the rate of new facility construction. To inform theseassessments, the Agency performed the following analysis:

C Computation of a test ratio for the affected brick product market. Due to the expected increase in the demand forbrick, the numerator of this ratio is the engineering estimate of the unit costs of compliance for new brick sources(approximately $0.01 per SBE for a new kiln subject to the MACT floor standard). The denominator for this ratio isthe unit cost of a new brick supplier, which is assumed to be equal to the estimated baseline market price. As shown inTable 4-6, the production-weighted cost share for the market is 4.2 % under the MACT floor standard.

Table 4-6. New Source Analysis of Unit Production and Compliance Costs for BSCP Markets

New SourceUnit Costs ($/SBE)a

New Source Unit Compliance Costs ($/SBE) Cost Share (%)

$.19 $0.008 4.2%Note: aEqual to the baseline market price by assumption.

C Projection of percentage change in kiln construction with regulation for a future time period (2007). Using theconceptual approach presented in Figures 4-4 and 4-5, the Agency estimated the change in kiln construction for thefive-year period following promulgation of this regulation as:

(4.1)

where0d = Elasticity of demand (assumed to be –1.0)Z = Average size of a new kiln (56.5 million SBE/yr)Q2007 = The Census (U.S. Census Bureau, 2000) provided a brick production estimate of 8.55 billion SBE for 1999, the

latest year this information is available. For the five year period following promulgation, the engineeringanalysis independently projected brick growth of 904 million SBE. Thus, the quantity for the 2007 is projectedto be approximately 9.45 billion SBE.

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= Calculated using the ratio of production-weighted average new source per-unit control costs to baseline price(4.2 percent for the MACT floor)

Using this approach, the Agency estimated a 40 percent reduction in output by new sources under the MACT floor over the five-year time period following promulgation (see Table 4-7).

The results of the impact of the BSCP manufacturing NESHAP on new sources has three alternative interpretations:

• If it is assumed all new kilns produce at 100 percent capacity, then it is projected that the construction of 6 kilns of the 15projected to come on line would be delayed due to the regulation,

• All 15 new kilns are constructed as expected, but each kiln operates at a capacity utilization rate that is reduced by 40percent, or

• All 15 new kilns are constructed, but since they use the latest technology, they produce at lower cost; hence, 6 older(marginal) kilns shut down due to the regulation.

Table 4-7. New Source Sensitivity Analysis for the Brick and Structural Clay Products NESHAP

Elasticity of Demand

Projected Reduction in Quantity(103 SBE)

Projected % Reduction of TotalQuantity Number of

Delayed Kilns

-1 358,888 39.7% 5.9

-0.75 269,392 29.8% 4.5

-0.5 178,992 19.8% 2.9

The above results are sensitive to the assumption of elasticity of demand. Also shown in Table 4-7 are the results of asensitivity analysis where the elasticity of demand of BSCP varies from unitary elastic to inelastic. As these results show, themore elastic is demand, the larger is the impact of the regulation. For example, if demand elasticity is assumed to be -0.5, then itis expected that output produced by the new kilns would on be reduced by about 20 percent. This means that if new sources wereoperating at maximum capacity, construction of only 3 kilns is projected to be delayed.

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If we compare the total annual compliance costs of approximately $5.9 million faced by the 9 of the projected kilns to useDIFF ($470,000 per tunnel kiln), 4 are projected to use DLA ($297,000 per tunnel kiln) and the 2 new small kilns are projected touse DLA (195) to the BSCP manufacturing value of shipments for 1997, the latest year available (U.S. Census Bureau, 1999), wefind that these costs represent less than 0.4 percent of the value of shipments.4.5 Energy Impacts

Executive Order 13211 “Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use”(66 Fed. Reg. 28355, May 22, 2001) requires federal agencies to estimate the energy impact of significant regulatory actions. Theproposed NESHAP will trigger both an increase in energy use due to the operation of new abatement equipment as well as adecrease in energy use due to a decline in BSCP production. The net impact will be an overall increase in the industry’s energycosts by about $3.22 million per year. These impacts are discussed below in greater detail.

4.5.1 Increase in Energy Consumption

As described earlier in Section 3 of this report, brick and structural clay products manufacturing facilities that do not meetthe MACT floor are projected to install dry injection fabric filters to reduce their HAP emissions in compliance with the proposedregulation. The associated increase in total energy demand stemming from the compliance with this NESHAP is estimated toequal 91 billion Btu/year or approximately 26.7 million kilowatthours/year. The U.S. Department of Energy reports that theaverage retail prices of electricity for the industrial sector was $0.044 per kilowatthour in the base year of 1999 (DOE, 1999a). Therefore, the nationwide cost of the energy needed to operate the control equipment is estimated at $1.17 million per year.

4.5.2 Reduction in Energy Consumption

The economic model described earlier in this section predicts that increased compliance costs will result in an annualproduction decline of approximately 117,084 SBEs valued at about $22.2 million collectively. This production decline will leadto a corresponding decline in energy usage by brick and structural clay product manufacturers. EPA has computed an average‘energy per unit output ratio’ and multiplied it by the decline in production to quantify this impact.

Census data presented in Table 4-8 indicates that the U.S. brick and structural clay products manufacturing industryincurred energy costs of $175.6 million to produce $1.45 billion worth of bricks and structural clay products in 1997. Thistranslates into an energy consumption per unit of output ratio of 0.12 percent for the BSCP manufacturing industry. Therefore,energy costs are estimated to decline by $0.03 million per year if the industry’s production declines by 117,084 SBE valued at$22.2 million per year.

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Table 4-8. Energy Usage in Brick and Structural Clay Products Manufacturing

Industry Sector

NAICSCode

Value of Shipments ($106)

Fuel & Electricity Costs ($106)

Brick and Structural Clay Products Manufacturing 327121 $1,452.2 $175.6

Source: U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Census of Manufacturing IndustrySeries: Brick and Structural Clay Tile Manufacturing.

4.5.3 Net Impact on Energy Consumption

The operation of additional abatement capital is estimated to result in an increase in energy use worth $1.17 million peryear while the decrease in BSCP manufacturing will result in a decrease in energy use worth $0.03 million per year. Thesecompeting factors will result in a net increase in annual energy consumption by the BSCP industry of approximately $1.14million, on balance.

The total electricity generation capacity in the U.S. was 785,990 Megawatts in 1999 (DOE, 1999b). Thus, the electricityrequirements associated with the proposed abatement capital represent a small fraction of domestic generation capacity. Hence,the proposed NESHAP is not likely to have any significant adverse impact on energy prices, distribution, availability or use.

5 SMALL BUSINESS ANALYSIS

This regulatory action will potentially affect the economic welfare of owners of brick and other structural clay productfacilities. The ownership of these facilities ultimately falls on private individuals who may be owner/operators that directlyconduct the business of the firm or, more commonly, investors or stockholders that employ others to conduct the business of thefirm on their behalf (i.e., privately-held or publicly-traded corporations). The individuals or agents that manage these facilitieshave the capacity to conduct business transactions and make business decisions that affect the facility. The legal and financialresponsibility for compliance with a regulatory action ultimately rests with these agents; however, the owners must bear thefinancial consequences of the decisions. Environmental regulations like this rule potentially affect all businesses, large and small,but small businesses may have special problems in complying with such regulations.

5-2

The Regulatory Flexibility Act (RFA) of 1980 requires that special consideration be given to small entities affected byfederal regulation. The RFA was amended in 1996 by the Small Business Regulatory Enforcement Fairness Act (SBREFA) tostrengthen the RFA’s analytical and procedural requirements. Under SBREFA, the Agency must perform a regulatory flexibilityanalysis for rules that will have a significant impact on a substantial number of small entities.

This section identifies the businesses that will be affected by this proposed rule and provides an analysis to assist indetermining whether this rule is likely to impose a significant impact on a substantial number of the small businesses within thisindustry. The screening analysis employed here is a “sales test” that computes the annualized compliance costs as a share of salesfor each company. In addition, it provides information about the impacts on small businesses after accounting for producerresponses to the rule and the resulting changes in market price and output, as detailed in Section 4.

5.1 Identifying and Characterizing Small Businesses

The companies operating in the Brick and Structural Clay Products industry can be grouped into small and large categoriesusing Small Business Administration (SBA) general size standard definitions for NAICS codes. The SBA defines a small businessin terms of the employment or annual sales of the owning entity. These thresholds vary by industry and are evaluated based on theindustry classification (NAICS codes) of the impacted facilities. Five different NAICS codes are represented across the brick andother structural clay product facilities with a small business definition range from 500 to 750 employees. In determining thecompanies’ NAICS size standard, the following assumptions were made:

• A NAICS code for one company could not be found. In this case, the most conservative size standard of 750employees was applied.

• Seven companies own facilities that did not report SIC codes, NAICS codes, or reported incorrect codes. For thesecompanies, the NAICS codes listed in publicly accessible databases, such as Dun & Bradstreet, were assigned.

• In cases where companies own facilities with multiple NAICS codes, the most conservative SBA definition wasused. For example, if a company owned facilities with NAICS 327121 (size standard = 500 employees) andNAICS 327993 (size standard = 750 employees), the size standard of 750 employees was applied.

Based on the SBA definitions, the Agency identified 76 of the companies owning facilities that produce BSCP as small (84percent) and 14 as large (15 percent) (See Appendix A for a detailed listing).

5.2 Screening-Level Analysis

5-3

For the purposes of assessing the potential impact of this rule on these small businesses, the Agency considered the MACTfloor of dry injection fabric filters and calculated the share of annual compliance cost relative to baseline sales for eachcompany. When a company owns more than one facility, the costs for each facility it owns are summed to develop the numeratorof the test ratio. For this screening-level analysis, annual compliance costs were defined as the engineering control costs imposedon these companies; thus, they do not reflect the changes in production expected to occur in response to imposition of these costsand the resulting market adjustments.

As mentioned in Section 2.3 of the industry profile, the annual sales figures used to calculate cost-to-sales ratios for thesmall business screening analysis are from publicly available company profiles or are estimated in the EIA based on productionvalues reported in company survey responses. For 39 of the 77 small businesses, the EIA estimated revenues exceeded publiclyreported annual sales data. In these cases, the EIA estimated revenues were used in the calculation of cost-to-sales ratio. Salesmay be under-reported in publicly available profiles because they represent the annual sales of a subsidiary or branch of acompany or because the providing organization generated their sales estimates. Additionally, relying on estimated revenuesinstead of potentially under-reported company sales data makes consistent the results across the facility-level economic impactsmodel (in Section 4) and the small business cost-to-sales ratio screening analysis (in Section 5). For more details about the EIAestimated revenues, please consult Section 2.3.4.

Table 5-1 reports total compliance costs, the number of companies impacted at the zero, one, and three percent levels, andprovides summary statistics for the cost-to-sales ratios (CSRs) for small companies. As shown in Table 5-1, the aggregatecompliance costs of small businesses totals $5 million, which is 17 percent of the total industry costs of $23.96 million under theMACT floor option. Under the rule, the annual compliance costs incurred by small businesses range from zero to approximately 4percent of their sales with 80 percent of small businesses not incurring any regulatory costs. The 61 companies with zero cost-to-sales ratio own brick and structural clay products manufacturing facilities that do not have a design capacity exceeding 10 tph orthat have chosen to take a permit that effectively limits their sources’ design capacity to the 10 tph cutoff. While there a largenumber of small business incur no additional compliance costs, there are still some small firms with positive cost-to-sales ratios. Of the small companies with a positive cost-to-sales ratio, a majority have CSRs between 1 and 3 percent.

Table 5-1 also makes a comparison across the small companies that incur compliance costs associated with this regulationto the entire group of small companies operating in the industry. The table presents an average (median) cost-to-sales ratio of 2.2(2.3) percent for the directly affected small companies with a distribution ranging from a minimum of 0.2 percent to a maximumof 4.5 percent. If all small firms operating in the industry are considered together (i.e., those not affected by the rule and thosedirectly affected), the average (median) cost-to-sales ratio is 0.4 (0.0) percent.

5-4

5-5

5.3 Economic Analysis

The Agency also analyzed the economic impacts on small businesses under with-regulation conditions expected to resultfrom implementing the proposed NESHAP. Unlike the screening-level analysis described above, this approach examines smallbusiness impacts in light of the expected behavioral responses of producers and consumers to the regulation. As shown in Table5-2, pre-tax earnings for facilities owned by small businesses are projected to decrease by a little over $500 thousand under theMACT floor. Production costs are expected to increase due to regulatory costs, which are offset by a reduction in the change inthe quantity of bricks produced. Of the 93 facilities operated by small businesses, none are expected to close due to the regulation. In addition, employment at small firms is expected to decline by 23 full-time equivalent positions.

5.4 Assessment

At proposal, approximately 10 percent of small businesses had a cost-to-sales ratio (CSR) that exceeded 3 percent. Basedon changes made for the final rule and a reduction in regulatory costs of approximately $10 million, we estimate 3 small firms (3.9percent) will have a CSR that exceeds 3 percent. In addition, we estimate that 9 firms (11.8 percent) will have a CSR between 1and 3 percent. In order to gain better insight on how significantly these small businesses will be impacted by the MACT floor, wecompare the estimated CSRs with a profitability measure for these firms. While data on the profit rates of the firms in thisanalysis were not available, the U.S. Census Bureau reports quarterly return-to-sales for corporations in the Standard IndustrialClassification (SIC) major group 32 (Stone, Clay, Glass, and Concrete Products) with assets less than $25 million (U.S. Bureau ofthe Census, 1998). This SIC major group includes more than just the firms in this analysis, but it still provides the best availablemeasure of their profit margin. We weighted the quarterly rates by sales to derive the 1997 return-to-sales of 4.6 percent for thisindustry segment. There are no small businesses with cost-to-sales ratios that exceed the Census-based estimate of profit marginfor the SIC major group 32. This means that though the compliance costs associated with this regulation may lead some smallfirms to incur costs that are greater than 3 percent of sales, they are not high enough to warrant firm closures in most cases. Inaddition, a definitive conclusion cannot be drawn using the SIC major group 32 profit margin because its calculation includedmore than brick and structural clay product manufacturing companies. For comparison purposes, we also calculated thisprofitability measure for all corporations in SIC 32 (4.5 percent) and those corporations in SIC 32 with assets over $25 million(4.1 percent). The Census data indicate that profit rates are consistent across larger and smaller corporations within this SIC majorgroup.

Eighty percent of small businesses in the brick and structural clay products industry will face zero compliance costsassociated with this regulation. While there are some small businesses that do have positive cost-to-sales ratios, there are few innumber. In addition, no facilities owned by a small business are projected to close and none of the firms have cost-to-sales ratio

5-6

that exceed the average profit margin for the SIC group the brick and structural clay products industry is in. For this reason, thisNESHAP is not expected to have a significant impact on a substantial number of small businesses.

5-7

Tab

le 5

-1.

Sum

mar

y St

atis

tics f

or S

mal

l Bus

ines

s Ana

lysi

s for

BSC

P Fa

cilit

iesa

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otal

Tota

l Num

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pani

esb

7684

.4%

Ann

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AC

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($10

3 /yr)

$4,9

9320

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Cos

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tion

Num

ber

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33.

9%

Impa

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9

11.8

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Impa

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Cos

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Sum

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5%

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5-8

Table 5-2 Summary of Small Business Impacts Proposed BSCP Manufacturing NESHAP: 1999

BaselineWith

Regulation

Changes from Baseline

Absolute PercentRevenues ($103 /yr) $637,637 $642,777 $5,140 0.8%Costs ($103 /yr) $608,306 $613,949 $5,643 0.9%

Regulatory control costs $0 $4,993 $4,993 NAProduction costs $608,306 $608,828 $651 0.1%

Profits ($103/yr) $29,331 $28,828 -$503 -1.7%Employment (FTEs) 5,116 5,093 -23 -0.5%Operating facilities (#) 93 93 0 0.0%

Note: NA means not applicable.FTE refers to full-time equivalents.aRepresents total number of employees in 82 facilities owned by small businesses that provided data.

6-1

6 REFERENCES

American Business Information. American Business Directory Electronic Database. 1999.

Better Business Bureau. 2000. “Counseling Literature: Home Siding and Re-Siding,”<http://www.omahabbb.org/view/lit/0075.htm>

Dun and Bradstreet. Dun and Bradstreet Market Identifiers Electronic Database. 1999.

Gale Group. Gale Group Company Intelligence Electronic Database. 1999.

The Handbook of Texas Online. 1999. <http://www.tsha.utexas.edu/handbook/online/articles/view/EE/dleqk.html>

Hoover’s Online. Hoover’s Online: The Business Network. 2001.

Standard and Poor’s Corporation. Standard and Poor’s Register - Corporate ElectronicDatabase. 1999.

U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey ofManufactures, Statistics for Industry Groups and Industries. M96(AS-1).<http://www.census.gov/prod/3/98pubs/m96-as1.pdf>

U.S. Department of Commerce, Bureau of the Census. 1996. 1994 Annual Survey ofManufactures, Statistics for Industry Groups and Industries. M94(AS-1).<http://www.census.gov/prod/1/manmin/asm/m94as-1.pdf>

U.S. Department of Commerce, Bureau of the Census. 1995. 1993 Annual Survey ofManufactures, Statistics for Industry Groups and Industries. M93(AS-1).<http://www.census.gov/prod/1/manmin/asm/m93as-1/>

U.S. Department of Commerce, Bureau of the Census. 1998. Quarter 1: Quarterly Financial

6-2

Report for Manufacturing, Mining, and Trade Corporations.<http://www.census.gov:80/csd/qfr>

U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Census of Manufacturing Industry Series: Brick and Structural Clay Tile Manufacturing.<http://www.census.gov/prod/ec97/97m3271d.pdf>.

U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Census ofManufacturing Industry Series: Other Structural Clay Product Manufacturing.<http://www.census.gov/prod/ec97/97m3271f.pdf>.

U.S. Department of Commerce, Bureau of the Census. 1999. Concentration Ratios inManufacturing. <http://www.census.gov/epcd/www/concentration.html>.

U.S. Department of Commerce, Bureau of the Census. 2000. Current Industrial Reports for Clay Construction Products - Summary 1999. <http://www.census.gov:80/cir/www/mq32d.html>.


U.S. Department of Commerce, Bureau of the Census. 1996. Current Industrial Reportsfor Clay Construction Products - Summary 1995. <http://www.census.gov:80/cir/www/mq32d.html>.


U.S. Department of Commerce, Bureau of the Census. 2000. Current Industrial Reports -Survey of Plant Capacity, 1998. <http://www.census.gov/cir/www.mqc/pag2.html>

6-3

U.S. Department of Energy. 2001. Evaluating the Energy Value of Electricity Consumption.<http://www.eia.doe.gov/emeu/cbecs/primary.html>

U.S. Department of Energy. 1999a. Electric Power Annual, Volume I. Table A6: Electric Utility Average Revenue per Kilowatthour by Sector, 1990 through 1999. <http://www.eia.doe.gov/cneaf/electricity/epav1/ta6p1.html>

U.S. Department of Energy. 1999b. Electric Power Annual, Volume I. Table A2: Industry Capability by Fuel Source and Industry Sector, 1999 and 1998 (Megawatts). <http://www.eia.doe.gov/cneaf/electricity/epav1/elecprod.html#gencap>

U.S. Environmental Protection Agency. 1997. Emission Factor Documentation for AP-42Section 11.3 - Brick and Structural Clay Product Manufacturing Final Report. Office of Air Quality Planning and Standards, Emission Factor and Inventory Group.

U.S. Environmental Protection Agency. 2001. Memorandum from Brian Shrager and Mike Abraczinskas, Midwest Research Institute, to Mary Johnson, Emissions Standards Division, Office of Air Quality Planning and Standards, “Costs for Air Pollution Control Devices on Kilns-Brick and Structural Clay Products Manufacturing NESHAP”, June 7.

U.S. Environmental Protection Agency. 2000. Memorandum from Brian Shrager, MidwestResearch Institute to Mary Johnson, Emissions Standards Division, Office of AirQuality Planning and Standards, “Model Plants-Kilns, Brick and Structural Clay Products Manufacturing Industry Maximum Achievable Control Technology (MACT) Standard Support. May 10.

U.S. Environmental Protection Agency. 2001. Draft, OMB-83I Form Supporting Statement, for OMB Review of ICR No. 2022.01. Information Collection Request for the National Emission Standards for Hazardous Air Pollutants for the Brick and Structural Clay Products Source Category. May.

U.S. Environmental Protection Agency. 2000. Memorandum from Brian Shrager and Mike

6-4

Abraczinskas, Midwest Research Institute to Mary Johnson, Emissions Standards Division, Office of Air Quality Planning and Standards, “Costs for Air Pollution Control Devices on Kilns, Brick and Structural Clay Products Manufacturing NESHAP,” April 25.

U.S. Environmental Protection Agency. 2000. Memorandum from Brian Shrager, Midwest Research Institute to Mary Johnson, Emissions Standards Division, Office of Air Quality Planning and Standards, “Industry Characterization for Brick and Structural Clay Products Manufacturing,” February 25.

U.S. Environmental Protection Agency. 2002. Memorandum from Brian Shrager, Midwest Research Institute to Mary Johnson, Emissions Standards Division, Office of Air Quality Planning and Standards, “Final Rule Economic Inputs for Brick and Structural Clay Products ManufacturingNESHAP.” November 21.

U.S. Small Business Administration. 2001. Small Business Size Standards Matched toNorth American Industry Classification System (NAICS) Codes.<http://www.sba.gov/size/Table-of-SS-based-on-NAICS.PDF>

U.S. Small Business Administration. 2001. Small Business Size Standards Matched toStandard Industrial Classification (SIC) Codes.<http://www.sba.gov/regulations/siccodes/siccodes.pdf>

Virta, Robert. 1999. Clays, In: Minerals Yearbook, Metals and Minerals 1997: Volume 1.U.S. Geological Survey. U.S. Government Printing Office.



Virta, Robert. 1996. Clays, In: Minerals Yearbook, Metals and Minerals 1994: Volume 1.

6-5


A-4

APPENDIX A: SUMMARY BRICK AND STRUCTURAL

CLAY PRODUCTS (BSCP) COMPANY DATA

Table A-1. Summary Data for Companies Operating BSCP Facilities

Company NameNumber ofFacilities Employment Sales ($10^6) Small Business

American Eagle Brick Co., Inc. 1 NR NR YAtkinson Brick Co., Inc. 2 NR NR YBelden Brick Co. 8 NR NR NBoral Industries, Inc.1 18 NR NR NBrick and Tile Corp. of Lawrenceville 2 NR NR YCan-Clay Corp. 1 NR NR YCarolina Ceramics, LLC 1 NR NR YCastaic Clay Manufacturing Co., Inc. 1 NR NR YCertainteed Corp. 1 NR NR NCherokee Brick and Tile, Co., Inc. 1 NR NR YClay City Pipe2 2 NR NR YClinton-Campbell Contractor, Inc. 1 NR NR YColonial Brick Co., Inc. 1 NR NR YColumbus Brick Co., Inc. 1 NR NR YCommercial Brick Corp. 1 NR NR YContinential Brick Co., Inc. 1 NR NR YCunningham Brick Co., Inc. 2 NR NR YD'Hanis Clay Products, Inc. 1 NR NR YDti Investors, L.L.C. 2 NR NR NElgin-Butler Brick Co. 1 NR NR YEndicott Clay Products Co., Inc. 1 NR NR YEureka Brick and Tile Co., Inc. 1 NR NR YFlorida Brick and Clay Co., Inc. 1 NR NR YGeneral Clay Products Corp. 3 NR NR YGeneral Finance, Inc. 1 NR NR YHanson, PLC 12 NR NR NHenry Brick Co., Inc. 1 NR NR Y

A-5

Higgins Brick Co., Inc. 1 NR NR YHoffman Enterprises, Inc. 1 NR NR YHope Brick Works, Inc. 1 NR NR YIbstock PLC 10 NR NR NInternational Chimney Corp.3 1 NR NR YInterpace Industries, Inc. 1 NR NR YIskilar Brick, Inc.4,5 1 NR NR YJ.L. Anderson Co., Inc. 1 NR NR Y

Company NameNumber ofFacilities Employees Sales Small Business

Jenkins Brick Co., Inc. 2 NR NR YJordan Industries6 1 NR NR NJustin Industries7 16 NR NR NKansas Brick and Tile Co., Inc. 1 NR NR YKasten Clay Products, Inc. 1 NR NR YKentwood Brick and Tile ManufacturingCo., Inc. 1 NR NR YL.P. McNear Brick Co., Inc. 1 NR NR YLee Brick and Tile Co., Inc. 1 NR NR YLogan Clay Products Co., Inc. 1 NR NR YLondon Tile Co. 1 NR NR YLouisville Brick Co., Inc. 1 NR NR YMarion Ceramics, Inc. 1 NR NR YMarseilles Brick Venture LimitedPartnership 1 NR NR NMcAvoy Vitrified Brick Co. 1 NR NR YMCP Industries, Inc. 4 NR NR YMetropolitan Ceramics, Inc. 1 NR NR YMorin Brick Co., Inc. 2 NR NR YMutual Materials Co., Inc. 3 NR NR YNash Brick Co., Inc. 1 NR NR YNew London Brick, Inc. 1 NR NR YOchs Brick and Tile Co. 1 NR NR YOld Carolina Brick Co. 1 NR NR YOld Virginia Brick Co., Inc. 2 NR NR YOwensboro Brick and Tile Co. 1 NR NR YPacific Clay Products, Inc. 1 NR NR Y

A-6

Pacific Coast Building Products 3 NR NR NPine Hall Brick Co., Inc. 1 NR NR YRagland Clay Products 1 NR NR YRichards Brick Co., Inc. 1 NR NR YRichland Moulded Brick Co. 1 NR NR YRobinson Brick Co., Inc. 1 NR NR YRoeben Tonbaustoffe8 2 NR NR NSaint Joe Brick Works, Inc. 1 NR NR YScott Jewett Truck Line, Inc.9 1 NR NR YSeneca Tiles, Inc. 1 NR NR YSioux City Brick and Tile Co.10 2 NR NR YSnyder Brick and Tile Co., Inc. 1 NR NR YSouthern Brick and Tile Co., Inc. 1 NR NR Y

Company NameNumber ofFacilities Employees Sales Small Business

Stark Ceramics, Inc. 1 NR NR YStatesville Brick Co. 1 NR NR YStiles and Hart Brick Co. 1 NR NR YStone Creek Brick Co., Inc. 1 NR NR YSummit Pressed Brick and Tile Co., Inc.11 2 NR NR YSummitville Tiles, Inc. 2 NR NR NSuperior Clay Corp. 1 NR NR YTaylor Clay Products, Inc. 1 NR NR YTexas Industries, Inc.12 3 NR NR NThe Denver Brick Co., Inc. 1 NR NR YTri-State Brick and Tile Co., Inc. 1 NR NR YVermont Brick Manufacturing, LP 1 NR NR YWatsontown Brick Co., Inc. 1 NR NR YWheeler Brick Co., Inc. 1 NR NR YWienerberger Baustoffindustrie AG13 18 NR NR NYadkin Brick Co. 1 NR NR YYankee Hill Brick Manufacturing Co.,Inc. 1 NR NR YTotals 189 $10,964 89,904 77 small, 13 large

NR means Not Reported. Employment and sales data were used in the economic impact analysis, but those data taken from Dun & Bradstreet which areconsidered proprietary and are therefore not included in this table.

1 Boral Industries, Inc. owns U.S. Tile.

A-7

2 Clay City Pipe owns Bowerston Shale Co.3 International Chimney Corp. owns Continental Clay Co. 4 Iskilar Brick, Inc. owns Darlington Brick and Clay Products Co. 5 Iskilar Brick, Inc. owns Powell and Minnock Brick Works, Inc. 6 Jordan Industries owns Daaco, Inc.. 7 Justin Industries owns Texas Clay Products.8 Roeben Co., Inc. owns Triangle Brick Co.9 Scott Jewett Truck Line, Inc. owns Mangum Brick Co.10 Sioux City Brick and Tile Co. owns United Brick and Tile Co.11 Summit Pressed Brick and Tile Co., Inc. owns Lakewood Brick and Tile Co. 12 Texas Industries owns Athens Brick Co. 13 Wienerberger Baustoffindustrie AG owns General Shale.

B-8

APPENDIX B

ECONOMIC MODEL OF THE BRICK AND

STRUCTURAL CLAY PRODUCTS MARKETS

Implementation of the proposed MACT standards will affect the costs of production in the brick and structural clay

products industry for existing plants. Responses at the facility level to these additional costs will collectively determine the

market impacts of the regulation. Specifically, the cost of the regulation may induce some facilities to alter their current level of

production or to close. These choices affect, and in turn are affected by, the market price for each product. The Agency has

employed standard microeconomic concepts to model the supply of each product and the impacts of the regulation on production

costs and the output decisions of BSCP facilities. The main elements of the analysis are to

C characterize production of each product at the individual facility and market levels,

C characterize demand for each product, and

C develop the solution algorithm to determine the new post-regulatory equilibrium.

B.1 Supply of Brick and Structural Clay Products

Market supply of BSCP (Qs) may be expressed as the sum of domestic and foreign supply, or imports:

Qs = qs + qI (B.1)

where qs is the domestic supply of a particular clay product, which is the sum of production from affected (qa) and unaffected (qu)

facilities, and qI is the foreign supply, or imports. Each of these supply components is described below.

B-9

(B.2)

B.1.1 Affected Facilities

The Agency has developed individual supply functions for each clay product at affected facilities. Producers of bricks and

structural clay products have the ability to vary output in the face of production cost changes. Upward-sloping supply curves for

each product are developed to allow these facilities to respond in this manner when regulatory costs are imposed. For this

analysis, the generalized Leontief profit function was used to derive the supply curve for each clay product at each facility. This

functional form is appropriate given the fixed-proportion material input (clay minerals) and the variable-proportion inputs of

chemicals, labor, electricity, and energy. Applying Hotelling’s lemma to the generalized Leontief profit function produces the

following general form of the supply functions at affected facilities for each structural clay product:

where p is the market price for the each product, (j and $ are model parameters, and j indexes producers (i.e., individual affected

facilities). The theoretical restrictions on the model parameters that ensure upward-sloping supply curves are (j > 0 and $ < 0.

Figure B-1 illustrates the theoretical supply function of Eq. (B.2). The upward-sloping supply curve is specified over a

productive range with a lower bound of zero that

corresponds with a shutdown price equal to and an upper bound given by the

productive capacity of qMj that is approximated by the supply parameter (j. The curvature of the supply function is determined by

the $ parameter.

B-10

(B.3)

To specify the supply function of Eq. (B.2) for this analysis, the $ parameter is computed by substituting an assumed

market supply elasticity for each product (>), the market price of the product (p), and the production-weighted, average annual

production level of affected facilities into the following equation:

Absent econometric or literature estimates, the market-level supply elasticity will be assumed to be 1, which makes supply unit

elastic (i.e., a 1 percent change in price leads to a 1 percent change in output). The foreign supply elasticity is assumed to be 1.5.

The 1999 market prices of each product are given as described above, and the average annual production level

B-11

Figure B-1. Theoretical Supply Function for Affected Facilities

of each clay product per facility are derived from facility-level information in the EPA facility database. The $ parameter for each

structural clay product is then calculated by incorporating these values into Eq. (B.3). Because of the variation in size across brick

facilities, a distinct $ parameter is estimated for the small, medium, and large facility categories.

Supply Function Intercept

The intercept of the supply function, (j, approximates the productive capacity and varies across products at each facility.

This parameter does not influence the facility’s production responsiveness to price changes as does the $ parameter. Thus, the

B-12

(B.4)

(B.5)

parameter (j is used to calibrate the model so that each affected facility’s supply equation is exact using the baseline production

data for 1999.

Regulatory Response

The production decisions at these facilities are affected by the total annual compliance costs, cj, which are expressed per

standard brick equivalent (SBE). Total annual compliance cost estimates were provided by EPA’s engineering analysis and

include annual capital costs, annual operating and maintenance costs, and applicable monitoring costs. Each supply equation will

be directly affected by the regulatory control costs, which enter as a net price change (i.e., pj – cj). Thus, the supply function for

each affected facility from Eq. (B.2) above becomes:

The total annual compliance costs per SBE are projected given the annual production per facility and EPA’s regulatory cost

estimates for each facility.

A.1.2 Unaffected Facilities

These facilities are not directly affected by the regulation and will be modeled as a single representative supplier. Supply

of each structural clay product from these facilities (qu) may be expressed by the following general formula for each product, that

is,

B-13

(B.6)

where p is the market price for the product, >u is the domestic supply elasticity (assumed to be 0.5), and Au is a multiplicative

supply parameter that calibrates the supply equation for each product given data on price and the supply elasticity to replicate the

observed 1999 level of production from these facilities.

B.1.3 Foreign Supply (Imports)

Similar to unaffected facilities, foreign producers are not directly affected by the regulation but will be included in the

model as a single representative supplier. Supply of clay products from foreign producers (qI) may be expressed by the following

general formula for each product:

where p is the market price for the product, >I is the import supply elasticity (assumed to be 1.5), and AI is a multiplicative supply

parameter that calibrates the supply equation for each product given data on price and the foreign supply elasticity to replicate the

observed 1999 level of imports.

B.2 Demand for Brick and Structural Clay Products

Market demand for each structural clay product (Qd) may be expressed as the sum of domestic and foreign demand:

Qd = qd + qx (B.7)

where qd is the domestic demand and qx is the foreign demand, or exports, as described below.

B.2.1 Domestic Demand

Domestic demand for each clay product may be expressed by the following general formula for each product:

B-14

(B.8)

(B.9)

where p is the market price for the product, 0d is the domestic demand elasticity (assumed to be -1.5), and Bd is a multiplicative

demand parameter that calibrates the demand equation for each product given data on price and the domestic demand elasticity to

replicate the observed 1999 level of domestic consumption.

B.2.2 Foreign Demand (Exports)

Foreign demand, or exports, for each structural clay product may be expressed by the following general formula for each

product:

where p is the market price for the product, 0x is the export demand elasticity (assumed to be equal to -1.5), and Bx is a

multiplicative demand parameter that calibrates the foreign demand equation for each product given data on price and the foreign

demand elasticity to replicate the observed 1999 level of exports.

B.3 Post-Regulatory Market Equilibrium Determination

Facility responses and market adjustments can be conceptualized as an interactive feedback process. Facilities face

increased production costs due to compliance, which causes facility-specific production responses (i.e., output reduction). The

cumulative effect of these responses leads to an increase in the market price that all producers (affected and unaffected) and

consumers face, which leads to further responses by producers (affected and unaffected) as well as consumers and thus new

market prices, and so on. The new equilibrium after imposing the regulation is the result of a series of iterations between producer

B-15

and consumer responses and market adjustments until a stable market price arises where total market supply equals total market

demand (Qs = Qd).

This process for determining equilibrium price (and output) with the increased production cost is modeled as a Walrasian

auctioneer. The auctioneer calls out a market price for each product and evaluates the reactions by all participants (producers and

consumers), comparing total quantities supplied and demanded to determine the next price that will guide the market closer to

equilibrium (i.e., where market supply equals market demand). Decision rules are established to ensure that the process will

converge to an equilibrium, in addition to specifying the conditions for equilibrium. The result of this approach is a vector of

prices with the proposed regulation that equilibrates supply and demand for each product.

The algorithm for deriving the post-compliance equilibria in all markets can be generalized to five recursive steps:

1) Impose the control costs on each affected facility, thereby affecting their supply decisions.

2) Recalculate the market supply of each structural clay product.

3) Determine the new prices via the price revision rule for both markets.

4) Recalculate the supply functions of all facilities with the new prices, resulting in a new market supply of each

product. Evaluate market demand at the new prices.

5) Go to Step #3, resulting in new prices for each product. Repeat until equilibrium conditions are satisfied in all

markets (i.e., the ratio of supply to demand is arbitrarily small for each product).

C-16

APPENDIX C

ESTIMATING CHANGES IN ECONOMIC WELFARE

The economic welfare implications of the market price and output changes with the regulation can be examined using two

slightly different tactics, each giving a somewhat different insight but the same implications: (1) changes in the net benefits of

consumers and producers based on the price changes and (2) changes in the total benefits and costs of these products based on the

quantity changes. This analysis focuses on the first measure—the changes in the net benefits of consumers and producers.

Figure C-1 depicts the change in economic welfare in a competitive market by first measuring the change in consumer surplus and

then the change in producer surplus. In essence, the demand and supply curves previously used as predictive devices are now

being used as a valuation tool.

This method of estimating the change in economic welfare with the regulation divides society into consumers and

producers. In a market environment, consumers and producers of the good or service derive welfare from a market transaction.

The difference between the maximum price consumers are willing to pay for a good and the price they actually pay is referred to

as “consumer surplus.” Consumer surplus is measured as the area under the demand curve and above the price of the product.

Similarly, the difference between the minimum price producers are willing to accept for a good and the price they actually receive

is referred to as “producer surplus” or profits. Producer surplus is measured as the area above the supply curve and below the

price of the product. These areas can be thought of as consumers’ net benefits of consumption and producers’ net benefits of

production, respectively.

C-17

In Figure C-1, baseline equilibrium in the competitive market occurs at the intersection of the demand curve, D, and supply

curve, S. Price is Pl with quantity Ql. The increased cost of production with the regulation will cause the market supply curve to

shift upward to SN. The new equilibrium price of the product is P2. With a higher price for the product, there is less consumer

welfare, all else being unchanged as real incomes are reduced. In Figure C-1(a), area A represents the dollar value of the annual

net loss in consumers’ benefits with the increased price.

C-18

P1

P2

Q1Q2

S

S'

D

Q/t

$/Q

(a) Change in Consumer Surplus with Regulation

P1

P2

Q1Q2

S

S'

D

Q/t

$/Q

(b) Change in Producer Surplus with Regulation

P1

P2

Q1Q2

S

S'

D

Q/t

$/Q

(c) Net Change in Economic Welfare with Regulation

A

B

C

D

Figure C-1. Economic Welfare Changes with Regulation Under Perfect Competition

C-19

The rectangular portion represents the loss in consumer surplus on the quantity still consumed, Q2, while the triangular area

represents the foregone surplus resulting from the reduced quantity consumed, Ql–Q2.

In addition to the changes in consumer welfare, producer welfare also changes with the regulation. With the increase in

market price, producers receive higher revenues on the quantity still purchased, Q2. In Figure C-1(b), area B represents the

increase in revenues due to this increase in price. The difference in the area under the supply curve up to the original market price,

area C, measures the loss in producer surplus, which includes the loss associated with the quantity no longer produced. The net

change in producer welfare is represented by area B–C.

The change in economic welfare attributable to the compliance costs of the regulation is the sum of consumer and producer

surplus changes, that is, – (A) + (B–C). Figure C-1(c) shows the net (negative) change in economic welfare associated with the

regulation as area D. However, this analysis does not include the benefits that occur outside the market (i.e., the value of the

reduced levels of air pollution with the regulation). Including this benefit will reduce the net cost of the regulation, and may result

in overall net positive benefits to society.

Documents

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